Accounting Review
Volume 92, Issue 2, March 2017, Pages 19-40
 

Gil Soo Bae (a), Seung Uk Choi (a), Dhaliwal, D.S. (c)(a), Lamoreaux, P.T. (b)
a Korea University, South Korea
b Arizona State University, United States
c The University of Arizona 
https://doi.org/10.2308/accr-51530

Abstract
This study examines the relation between auditors and their clients' investment efficiency. We hypothesize and find that auditor characteristics that proxy for an auditor's knowledge and resources are associated with higher client investment efficiency, after controlling for the auditor's effect on financial reporting quality. This result is consistent with auditors providing informational advantages to their clients in a generalized investment setting. We find that this auditor effect is more pronounced for clients who have a higher demand for information as measured by client size, industry competition, and client complexity. The effect is also more pronounced for clients of longer-Tenured auditors. Overall, the results suggest that auditors may be one component to the management information environment and, as such, appear to influence capital investment behavior.

Author keywords
Auditor incentives
Auditors
Information environment
Investment efficiency