Employee Movements from Audit Firms to Audit Clients

Andrew R. Finley, Mindy H.J. Kim, Phillip T. Lamoreaux, Clive S. Lennox

Research output: Contribution to journalArticle

Abstract

Regulators have expressed concerns about the “revolving door” between auditors and clients, whereby audit employees move directly from audit firms to audit clients (i.e., “direct alumni hires”). Regulators are concerned that these direct hires could compromise audit quality, partly because these employees could have previously audited their hiring company's financial statements. In contrast, we examine accounting and finance executives who move indirectly from audit firms to audit clients and who could not have previously audited the hiring company's financial statements (i.e., “indirect alumni hires”). We show that indirect hires occur more often than the direct hires that have concerned regulators. We predict and find that both direct and indirect alumni hires are associated with lower rates of executive turnover and audit firm turnover. However, there is no evidence that the reduced rates of executive turnover are explained by managerial entrenchment or that these hires are associated with lower audit quality. Overall, our findings suggest that direct and indirect employee movements from audit firms to audit clients are beneficial to executives, audit clients, and audit firms because they reduce the incidence of costly turnover.

Original languageEnglish (US)
JournalContemporary Accounting Research
DOIs
StatePublished - Jan 1 2019
Externally publishedYes

Fingerprint

Employees
Audit firms
Audit
Executive turnover
Turnover
Hiring
Financial statements
Audit quality
Finance
Compromise
Auditors
Managerial entrenchment

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Employee Movements from Audit Firms to Audit Clients. / Finley, Andrew R.; Kim, Mindy H.J.; Lamoreaux, Phillip T.; Lennox, Clive S.

In: Contemporary Accounting Research, 01.01.2019.

Research output: Contribution to journalArticle

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