Determinants and Economic Consequences of Signing Auditor Turnover: A Large-Scale Study from China REPORT

This study investigates why auditors leave one audit firm (and bring their clients) to another and the consequences of such turnover. Using a Chinese sample of 470 auditor-years with turnovers and 7,485 auditor-years without such turnovers from 2001 to 2014, we find that auditors’ professional competency is positively associated with a departure decision in additional to their demographics. Specifically, younger auditors, auditors who are industry specialists, and auditors who audit more clients and have better education background, are more likely to move, suggesting that “rising stars” in the accounting industry are more likely to move from one audit firm to another. However, female auditors, older auditors, and auditors with established status in the current audit firm are less likely to do so. Interestingly, Big 4 signing auditors in China are less likely to move relative to non-Big 4 auditors. We also find that auditors with lower audit quality are less likely to move from one audit firm to another, suggesting that the job market is penalizing auditors for bad quality audits. In terms of consequences, we find that the audit firm is more likely to lose clients whose incumbent auditor moves to another audit firm and it tends to lower audit fees for clients that stay with the audit firm, assign better auditors to them, and treat them more leniently. Our study provides insights that should be of interest to the audit profession, audit firms, and regulators.