A large auditing literature concludes that Big N auditors provide higher audit quality than non-Big N auditors. An unresolved question, however, is whether self-selection drives this “Big N effect.” Recently, a high profile study concludes that Propensity Score Matching (PSM) on client characteristics causes the Big N effect to disappear. We conjecture that this finding may be affected by PSM’s sensitivity to its design choices or by the particular set of audit quality measures used in the analysis. To investigate, we examine how random combinations of three basic PSM design choices influence the relation between Big N auditors and several of the most commonly used measures of audit quality. We find that the results are sensitive to the design choices as well as the audit quality measures, with the majority of models finding a Big N effect. Importantly, we find similar results when we restrict our analysis to PSM design choices that lead to high quality matches. The Big N effect is also found using an alternative matching procedure, Coarsened Exact Matching. Overall, our findings suggest that it is premature to conclude that client characteristics drive the Big N effect.
| Speaker: | Dr Mark DeFond A N Mosich Chair Professor of Accounting, University of Southern California (Cheng Tsang Man Visiting Professor, Singapore Management University) |
| When: |
3.30 - 5.00 pm |
| Venue: | School of Accountancy Level 4, Meeting Room 4.1 |
| Contact: | Office of the Dean Email: SOAR@smu.edu.sg |