Audit Office Reputation Shocks from Gains and Losses of Major Industry Clients

Publication Type:
Journal Article
Contemporary Accounting Research, 2017, 34 (4), pp. 1922 - 1974
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© CAAA Our study reports evidence on the dynamic effects of client switches on auditor reputations and fee premia. Offices of large accounting firms that lose (gain) major industry clients experience a reputation shock leading to more same-industry client losses (gains) over the next two years. There is also a shift in audit fees charged to other same-industry clients when a major client loss (gain) results in an audit office losing (gaining) city-level industry leadership. A major client loss or gain also creates a short-term capacity shock to an audit office's ability to supply high-quality audits. However, there is no evidence of reputation spillovers to other-industry clients in the audit office, or to clients in other offices of the accounting firm.
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