research
Publications
Auditors and Client Investment Efficiency: A Quasi‑replication and Further Insights from a Regulatory Change with Christopher Bleibtreu, Luciana Orozco and Zhenyang Shi
This study is a quasi-replication and extension of Bae et al. (2017), which examines the relationship between auditors’ characteristics and their audit clients’ investment efficiency. Whereas Bae et al. (2017) use U.S. public firm data, we draw a more general picture by using both public and private firm data from Norway, and find that audit clients invest more efficiently if their auditors have more knowledge and resources. Exploiting a regulatory change in 2011 that allowed small private Norwegian firms to opt out of previously mandatory auditing, we further show that audits can increase investment efficiency for small private firms.
Bleibtreu, C., Erinc, M., Orozco, L., & Shi, Z. (2025). Auditors and client investment efficiency: a quasi-replication and further insights from a regulatory change. Journal of Business Economics, 95(2), 257-294.
Link to an article on our paper
Working Papers
Auditor-Client Compatibility and Audit Quality with Tzachi Zach (under revision for 3rd round at Contemporary Accounting Research)
We develop a new auditor-client fit metric based on topical compatibility between auditors and their clients, combining the results of PCAOB inspections with clients’ disclosures of their critical accounting policies. Auditor fit is negatively related to several traditional audit quality proxies, including restatements, abnormal accruals, and the likelihood of an auditor missing a material weakness in internal controls, and it outperforms established measures of auditor-client compatibility such as over twenty versions of industry specialization. Auditor fit is also positively associated with real earnings management, consistent with stronger auditor oversight imposing higher costs on accrual earnings management.
When the Spotlight Burns: Spillover Effects of Negative Media Coverage on Audit Quality with Stavriana Hadjigavriel
This study examines whether negative media exposure faced by an audit client generates adverse spillover effects on the audit quality of other clients that share the same auditor. Using a sample of U.S. fraud-related events, and the staggered closure of major newspapers as an exogenous shock to local media exposure, we find that when the accusation date of a targeted client coincides with the audit period of another client, the latter experiences a significant deterioration in audit quality. The effect is concentrated among clients operating in a different industry than the targeted firm, older audit engagements, smaller clients, and firms with lower analyst coverage, and extends to the audit partners involved.
PCAOB Inspection Report Content and Auditor Dismissals: Evidence from Securities Class Actions
I examine whether clients with misconduct that aligns with their auditor’s publicly disclosed deficiency areas are more likely to dismiss that auditor. Using a sample of U.S. securities class action cases with fiscal years from 2005 to 2024, I construct a text-based measure of misconduct-related regulatory exposure that captures the topical overlap between the allegations in each complaint and the deficiency findings in the auditor’s most recent PCAOB inspection report. I find that higher misconduct-related regulatory exposure predicts a greater probability of subsequent auditor dismissal, and this relation holds after entropy balancing and under a stricter definition of dismissal. The relation is present among clients of auditors with low overall deficiency rates, where a rare area of weakness that matches the client’s misconduct is a more precise signal of detection risk than the same overlap at an auditor that is deficient across many areas. These results suggest that firms respond to publicly observable information about auditor weaknesses when they perceive those weaknesses as directly relevant to their own misconduct.