Auditor Stock Ownership, Investment Returns, and Audit Quality

Henrik Nilsson, Jenni Kallunki, Florian Eugster and Ann Vanstraelen
Additional contact information
Henrik Nilsson: Stockholm School of Economics
Jenni Kallunki: University of Oulu - Department of Economics, Accounting and Finance
Florian Eugster: University of St. Gallen - Institute of Accounting, Control and Auditing; Swiss Finance Institute
Ann Vanstraelen: Maastricht University

No 25-79, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Using a novel dataset of private stock portfolios from Swedish auditors, we provide initial empirical evidence on the extent of Big 4 auditors' ownership of individual stocks, their trading performance, and the quality of their audits. We find that individual stock ownership is widespread among Big 4 auditors, with over 50% holding shares in publicly listed Swedish companies, and that stock ownership varies with personal and professional characteristics. On average, Big 4 auditors generate positive market-adjusted returns on their investments, with some evidence of risk-adjusted outperformance, especially among audit partners and industry experts. However, Big 4 stock-owning auditors tend to issue more aggressive and less conservative audit reports and have a higher propensity for clients to meet or beat the zero earnings threshold. Collectively, our findings suggest that some Big 4 auditors can leverage their professional knowledge for private investment gains and that audit quality among these auditors may be compromised.

Keywords: Auditors; Audit quality; Stock ownership; Investment performance (search for similar items in EconPapers)
JEL-codes: G11 M41 M42 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2025-05
New Economics Papers: this item is included in nep-acc
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2579

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