Theme: Knowledge Transfer in Audit Firms

Speaker: Tusheng Xiao (Central University of Finance and Economics)

Host: Yu Cao (School of Accounting, SWUFE)

Time: 10:00-11:30a.m., November 12, 2019, Tuesday

Place: Room D301, Tongbo Building, Liulin Campus

Sponsor: Academic Research Office, School of Accounting

Introduction of the speaker:

Tusheng Xiao, associate professor from Central University of Finance and Economics. He got the Ph.D. from Shanghai University of Finance and Economics. His research interests include accounting and finical management . He has published many papers in The Accounting Review, Journal of Corporate Finance, Accounting and Finance, Emerging Markets Finance and Trade, China Accounting and Finance Review, etc.

Abstract:

We utilize the setting of the audit market consolidation in China over the 1998–2013 period to study knowledge transfer in audit firms. We employ a difference-in-difference approach and examine the effect of industry-specific knowledge transfer on audit performance after a merger of two audit firms with different levels of expertise in a particular industry. For clients in an industry audited by both merging audit firms, those audited by the less competent audit firm in that industry belong to the treatment group, while all other clients belong to the control group. We find an economically significant improvement in audit quality (as reflected in a reduction in client misstatements) for the treatment group relative to the control group in the same merged audit firm. In contrast to across-audit-firm comparisons in prior research, our within-audit-firm comparison allows us to eliminate all common effects at the audit firm level and partly attribute the audit performance improvement of the treatment group to industry-specific knowledge transfer after the merger.