Proprietary information spillovers and supplier choice: evidence from auditors

Daniel Aobdia ()
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Daniel Aobdia: Northwestern University

Review of Accounting Studies, 2015, vol. 20, issue 4, No 8, 1504-1539

Abstract: Abstract I test whether information spillover concerns are a causal determinant of supplier choice and whether suppliers are a conduit for these spillovers. Using the audit setting, where firms must use the services of an auditor to certify their financial statements, I document a reluctance of rival firms to engage the same auditor due to information-spillover concerns. This reluctance mitigates the benefits of industry specialization by auditors shown in prior literature. Using several quasi-natural experiments that exogenously vary the information-spillover costs of sharing the same auditor, while keeping the benefits of industry specialization constant, I find that same-industry rivals become less (more) likely to share the same auditor when the costs of information spillovers increase (decrease). I also find that firms initially sharing the same auditor make less similar decisions following an exogenous shock that compels them to switch auditors, suggesting that a legitimate reason may exist for client concerns about information spillovers.

Keywords: Information spillovers; Suppliers; Auditor choice; Quasi-natural experiments (search for similar items in EconPapers)
JEL-codes: D83 K31 L84 M42 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/s11142-015-9327-x

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