Does Investor Selection of Auditors Enhance Auditor Independence?
- 1 July 2004
- journal article
- Published by American Accounting Association in The Accounting Review
- Vol. 79 (3) , 797-822
- https://doi.org/10.2308/accr.2004.79.3.797
Abstract
This paper reports the results of experiments designed to examine whether investor selection of auditors enhances auditor independence. The experimental design enables us to explore the effect on independence of different institutional rules as to who hires and fires auditors and to directly measure independence violations. The results suggest that transferring the power to hire and fire the auditor from managers to investors significantly decreases the proportion of independence violations. Additional analysis suggests that a reduction in independence violations increases the overall economic surplus generated in the markets examined.Keywords
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