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Changes in Big N auditors’ client selection and retention strategies over time

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  • Daniel Aobdia

    (Northwestern University)

  • Luminita Enache

    (University of Calgary)

  • Anup Srivastava

    (University of Calgary)

Abstract

We examine changes over time in Big N auditors’ client selection and retention strategies, from 1970 to 2015, by client size and risk segments. We particularly focus on the period from 1997 to 2001, characterized by numerous tumultuous events that led to the Sarbanes–Oxley Act of 2002 (SOX). We find that Big N auditors shed en masse the smallest and riskiest clients during this tumultuous phase. Our results show that the initial impetus for the change in Big N’s client selection strategies at the dawn of the twenty-first century came from changes in the market conditions, not the demise of Arthur Andersen and the implementation of SOX, as concluded in prior literature. Those changes led to the current divide between the characteristics of Big N and non-Big N client segments that is taken for granted today. Our findings also shed light on the debate about the Big N association with audit quality. While we find existence of a Big N effect, we also find that this effect is highly correlated with, and appears and disappears with, changes in Big N’s client screening criteria.

Suggested Citation

  • Daniel Aobdia & Luminita Enache & Anup Srivastava, 2021. "Changes in Big N auditors’ client selection and retention strategies over time," Review of Quantitative Finance and Accounting, Springer, vol. 56(2), pages 715-754, February.
    • Handle: RePEc:kap:rqfnac:v:56:y:2021:i:2:d:10.1007_s11156-020-00907-8
    DOI: 10.1007/s11156-020-00907-8
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    1. Wuchun Chi & Chien-min Kevin Pan, 2022. "How do auditors respond to accounting restatements? Evidence on audit staff allocation," Review of Quantitative Finance and Accounting, Springer, vol. 58(2), pages 847-879, February.

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    More about this item

    Keywords

    Competitive structure; Public companies; Oligopoly; Big N audit firms; Audit risks; Audit quality; Dot-com boom and bust;
    All these keywords.

    JEL classification:

    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M49 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Other

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