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Initial Retention of External Accountants in Startup Ventures

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  • Gavin Cassar
  • Christopher Ittner

Abstract

This study investigates the determinants of the initial retention of external accountants by new US startups. We test several arguments related to agency and credibility needs, financial activity and complexity, and accounting support and advice. Consistent with financial activity and complexity arguments, we find that intended scale and bank account activity are positively associated with both the actual and intended retention of an accountant. Comparing the decision to retain an accountant with the retention of another professional service, retaining a lawyer, we find many of the same factors to be significant. However, we find that lawyers are more likely to be retained during heightened uncertainty, primarily given the role of lawyers with patent and intellectual property assistance. Overall, these results suggest that some of the determinants of external accountant retention contrast with the determinants of internal accounting resource adoption, which are primarily related to decision-making needs and uncertainty.

Suggested Citation

  • Gavin Cassar & Christopher Ittner, 2009. "Initial Retention of External Accountants in Startup Ventures," European Accounting Review, Taylor & Francis Journals, vol. 18(2), pages 313-340.
    • Handle: RePEc:taf:euract:v:18:y:2009:i:2:p:313-340
    DOI: 10.1080/09638180902731562
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    Citations

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    Cited by:

    1. Per Davidsson & Scott Gordon, 2012. "Panel studies of new venture creation: a methods-focused review and suggestions for future research," Small Business Economics, Springer, vol. 39(4), pages 853-876, November.
    2. Kim, Jong-Hoon & Fujiyama, Keishi & Koga, Yuya, 2024. "The effect of voluntary international financial reporting standards adoption on information asymmetry in the stock market: Evidence from Japan," Research in International Business and Finance, Elsevier, vol. 69(C).
    3. Stefanie De Bruyckere & Patricia Everaert, 2021. "The Role of the External Accountant in Business Planning for Starters: Perspective of the Self-Determination Theory," Sustainability, MDPI, vol. 13(6), pages 1-24, March.
    4. Metka Duhovnik, 2011. "Time to Endorse the ISAs for European Use: The Emerging Markets' Perspective," Accounting in Europe, Taylor & Francis Journals, vol. 8(2), pages 129-140.
    5. Simone Aresu & Luigi Rombi & Andrea Cardia, 2019. "Management accounting systems in venture capital-backed start-up companies," MANAGEMENT CONTROL, FrancoAngeli Editore, vol. 2019(3), pages 35-58.
    6. Gavin Cassar, 2011. "Discussion of The Value of Financial Statement Verification in Debt Financing: Evidence from Private U.S. Firms," Journal of Accounting Research, Wiley Blackwell, vol. 49(2), pages 507-528, May.
    7. Mertzanis, Charilaos & Marashdeh, Hazem & Houcine, Asma, 2024. "Do financing constraints affect the financial integrity of firms?," International Review of Economics & Finance, Elsevier, vol. 90(C), pages 220-240.
    8. Ann Vanstraelen & Caren Schelleman, 2017. "Auditing private companies: what do we know?," Accounting and Business Research, Taylor & Francis Journals, vol. 47(5), pages 565-584, July.
    9. Zahid Ali & Ghulam Mustafa, 2023. "On Accounting Firms Serving Small and Medium‐Sized Enterprises: A Review, Synthesis and Research Agenda," Australian Accounting Review, CPA Australia, vol. 33(3), pages 313-332, September.
    10. Lukas Held & Andrea M. Herrmann & Allard Mossel, 2018. "Team formation processes in new ventures," Small Business Economics, Springer, vol. 51(2), pages 441-464, August.
    11. Salvador Carmona, 2010. "Editorial," European Accounting Review, Taylor & Francis Journals, vol. 19(1), pages 1-5.

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