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The association between auditor quality and human capital


  • Yu-Shu Cheng
  • Yi-Pei Liu
  • Chu-Yang Chien


Purpose - Following the high profile collapses of Enron and WorldCom, and the demise of Andersen, human capital (HC) has become a key driver of auditor quality. The purpose of this study is to investigate if there is a positive association between HC and auditor quality in public accounting firms and if the extent of association varies between accounting firms. Design/methodology/approach - Multiple regression and logistic modeling are applied to examine the association between auditor quality and HC. The sample consists of 4,865 firm-year observations over the period from 1989 to 2004. Findings - The main findings indicate that higher investments in HC correspond to a higher level of auditor quality. Furthermore, the power of HC on auditor quality has a significant difference between public and non-public audit market firms. Research limitations/implications - A number of theoretical and measurement limitations are acknowledged that could further increase the statistical power of the tests. Practical implications - The findings should be of interest to regulators, auditors, audit clients, and academics. The findings also suggest that HC has an impact on overall auditor quality. The audit firms need more well-educated and well-trained professionals with the experience to keep pace with the changing nature of the market and to perform audit tasks. Originality/value - The findings fill a gap in the literature regarding auditor quality and HC from the perspective of public accounting firms.

Suggested Citation

  • Yu-Shu Cheng & Yi-Pei Liu & Chu-Yang Chien, 2009. "The association between auditor quality and human capital," Managerial Auditing Journal, Emerald Group Publishing, vol. 24(6), pages 523-541, June.
  • Handle: RePEc:eme:majpps:v:24:y:2009:i:6:p:523-541

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    References listed on IDEAS

    1. repec:bla:joares:v:28:y:1990:i::p:1-20 is not listed on IDEAS
    2. Stiglitz, Joseph E, 1975. "The Theory of "Screening," Education, and the Distribution of Income," American Economic Review, American Economic Association, vol. 65(3), pages 283-300, June.
    3. DeAngelo, Linda Elizabeth, 1981. "Auditor size and audit quality," Journal of Accounting and Economics, Elsevier, vol. 3(3), pages 183-199, December.
    4. Hirshleifer, Jack, 1973. "Where Are We in the Theory of Information?," American Economic Review, American Economic Association, vol. 63(2), pages 31-39, May.
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    Cited by:

    1. repec:eur:ejmsjr:351 is not listed on IDEAS
    2. Samagaio, Antonio & Rodrigues, Ricardo, 2016. "Human capital and performance in young audit firms," Journal of Business Research, Elsevier, vol. 69(11), pages 5354-5359.
    3. Seleshi Sisaye, 2011. "The functional-institutional and consequential-conflictual sociological approaches to accounting ethics education: Integrations from sustainability and ecological resources management literature," Managerial Auditing Journal, Emerald Group Publishing, vol. 26(3), pages 263-294, March.


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