Open AccessReputation of low-quality big 4 and non-big 4 auditors: evidence from auditor switches of former Chuoaoyama clients
Author(s) -
Hikaru Murase,
Shingo Numata,
Fumiko Takeda
Publication year - 2013
Publication title -
journal of governance and regulation
Language(s) - English
Resource type - Journals
eISSN - 2306-6784
pISSN - 2220-9352
DOI - 10.22495/jgr_v2_i2_p1
Subject(s) - audit , reputation , successor cardinal , business , accounting , quality audit , big four , quality (philosophy) , joint audit , internal audit , political science , law , mathematical analysis , philosophy , mathematics , epistemology
We examine how an auditor’s reputation for audit quality affects the selection of new auditors in a unique setting. Specifically, we investigate forced auditor switches after the collapse of ChuoAoyama and its successor, Misuzu, in a low litigation country, Japan, where the insurance value of auditing is minimal. We find that former ChuoAoyama clients with greater reputation concerns tended to switch away from Misuzu, a low-quality Big 4 audit firm. Our results also indicate that auditors’ sensitivity to reputation decreased after the collapse of Misuzu, perhaps because of intensified capacity constraints and decreased differences in perceived audit quality between Big 4 and Non-Big 4 auditors after the audit scandal and the introduction of the J-SOX.