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The purpose of this paper is to examine the relation between a company's bid‐ask spread, a proxy for information asymmetry, and auditor tenure and specialization.

The tests use clustered regression for a sample of 31,689 company‐years from 1992 to 2001 and control for factors known to impact bid‐ask spread in cross‐section.

The findings suggest that the market's perception of disclosure quality is higher and private information search opportunities are fewer for companies engaging industry specialist auditors. In addition, the paper finds that information asymmetry has a U‐shaped relation to auditor tenure. This U‐shaped relation holds for both specialists and non‐specialists; however, the bid‐ask spread for specialists tends to fall below that of non‐specialists at all tenure intervals.

The findings may directly result from auditor tenure and specialization or it may be that those auditor‐related characteristics are a subset of concurrent choices made by the company that impacts disclosure quality.

Companies have incentives to lower information asymmetry and the findings document that the choice of a specialist auditor and the length of the auditor relationship can potentially influence this objective.

The paper provides information to academics, regulators, companies, and auditors concerning the effect of auditor‐client relationships on the level of information asymmetry. In addition, it shows the importance of industry specialization and audit firm tenure on audit quality.

The purpose of this study is to examine the impact of industry specialization of audit partners and audit committee members on the level of tax avoidance in Australian banks.

This study uses a multivariate regression analysis based on hand-collected data consisting of 180 observations from Australian domestic banks between 2010 and 2018.

The primary results of the empirical analysis indicate that audit partner industry specialization is negatively associated with the level of tax avoidance in Australian banks. Regarding the audit committee, the proportion of industry specialists among audit committee members reduces the magnitude of tax avoidance. These results are robust, as they hold the same for alternative measures of tax avoidance and industry specialization of audit partner and audit committee members. Results from supplementary analysis reveal that the interactive effect of both audit firm and audit partner industry specialization strengthens the auditors’ effectiveness in reducing the level of tax avoidance.

As this study highlights the importance of the industry specialization in decreasing tax avoidance, it can be beneficial for policymakers to assess the impact of good governance on the level of tax avoidance in the banking industry.

Even though the existing studies examine the link between the governance actors’ industry specialization and tax avoidance in nonfinancial firms, this paper explores the banking industry that differs from nonfinancial firms in among others; accounting and fiscal regulations. This study further provides unique evidence indicating that industry specialization of the audit partner constitutes a significant determinant of minimizing the bank’s level of tax avoidance.

The purpose of this paper is to examine the effects of auditor specialization, at both the partner and office levels, on audit quality within a developed market (the USA).

This study exploits the environment created when several large accounting firms purchased select Andersen offices following the firm's demise in 2002. OLS regressions were estimated from a sample of companies that assumingly followed their Andersen partner to the purchased accounting firm to examine the association between abnormal discretionary accruals and auditor specialization at both the office and partner levels.

The descriptive statistics and regression results show a significant negative relation between audit partner specialization and abnormal accruals. Furthermore, the results suggest that partner level specialization has a greater effect on audit quality than that of office level specialization.

This study contributes to the literature by examining the effects of auditor specialization at both the office and partner levels on audit quality within a developed market. The results of this study should be of interest to academics, investors, and regulators and help them in their assessments of auditor quality.

This study examines the effect that client size has on the relation between industry‐specialist auditors and fraudulent financial reporting. Most of the major accounting firms have organized their audit practices along industry lines, reflecting a belief that industry specialization leads to higher quality audits. Furthermore, regulatory bodies and extant research suggests that larger clients have greater bargaining power and are more likely to be able to convince the auditor to acquiesce to aggressive accounting. Also, it may be more difficult for an auditor to possess industry expertise for larger clients who are likely to be more complex and operate in more than one industry. Consistent with previous research, we generally find a significant negative relation between auditor industry specialization and client financial fraud. Also, as expected, the negative relation between auditor industry specialization and financial fraud is weaker for larger clients. This study provides evidence that the positive benefits of auditor industry specialization in deterring financial fraud is affected by client size.

The purpose of this paper is to examine the debt structure of group affiliated firms in Pakistan for the period of 2009-2011. The study seeks to know the level of debt specialization in group affiliated firms. If they do; then how are they different from stand-alone firms?

The study primarily uses Herfindahl-Hirschman Index and Excl90 as measures of debt specialization, which are further used in cluster, threshold and conditional analysis. Corporate groups are characterized to subsidize their affiliates through internal debt market and loan guarantee. Logistic regression model is used to analyze association among the measures of debt specialization and firm-specific characteristics for group affiliated and stand-alone firms.

The results show that about 85 percent firms use more than 50 percent of debt from one debt type. However, group affiliated firms are more inclined toward debt specialization than stand-alone firms. Tangibility and book leverage are negatively and significantly associated to the measures of debt specialization. Moreover, internal debt market and loan guarantee are suggestive reasons of debt specialization in group affiliated firms.

This study highlights the issue of group affiliation and its significance on firm’s debt structure. It has implications for determination of the optimal financing strategy. In the context of emerging economies, group affiliated firms can create market imperfections as a protection shield. In case of emerging markets, it is recommended to strengthen regulatory mechanism to avoid such market imperfections.

Prior studies have explored the phenomenon of debt specialization for rated and unrated firms. However, firm group affiliation is widely studied in the context of capital structure. This is a pioneer study to establish and analyze a link between firm group affiliation and debt specialization.

This paper investigates the impact of the PricewaterhouseCoopers (PwC) merger in Australia on existing and potential clients of the new merged firm. From prior theory it is expected that some existing clients may have an incentive to switch away from a newly merged firm as the same larger firm now audits close competitors once audited by separate firms. Prior theory also suggests that another group of potential clients should be attracted to the newly merged firm where the merger enhances or creates industry specializations. The expectation is that in both of these instances there will be increased switching activity associated with the newly merged audit firm. Contrary to expectations, a significantly lower level of switching behaviour was observed for the newly merged firm compared with that of the other Big 5 firms, suggesting that an advantage of enhanced specialization may not be the attraction of new clients but the retention of existing clients. When comparing the nature of the switches, some support was found for the view that the switches to the new firm were likely to be in enhanced areas of specialization, but no evidence was found to suggest that close competitors would switch away from this firm. The greater rate of retention of clients compared with other Big 5 firms was not associated with a more competitive audit pricing policy.

This study investigates the existence of Marshall, Jacob and Porter’s type of externalities in Mexico. We measure the impact of industrial specialization, competition and diversity on employment growth for the period 2004 to 2008.

The analysis is based on data from 41 highly dynamic industrial clusters originally obtained by applying Porter’s (1998) methodology. We use a cross-section specification estimated via instrumental variables and two-stage least square estimation (2SLS) to control for endogeneity.

On average, we find that industrial specialization exerts a negative impact on employment growth within states and within clusters, indicating that traded industries in Mexico carry very little innovation, operate in early stages of the life cycle, face high costs of employment reassignation or exhibit low adaptability. A negative impact of specialization on employment conforms with Jacobs (1969) type of externalities and confirms what other studies have found in France (Combes, 2000), Korea (Lee et al., 2005) and the USA (Delgado et al., 2014). The authors also find that competition generates more employment.

Industrial data at the sub-branch level were obtained from the Economic Census (EC) of the National Institute of Geography and Statistics (INEGI). The EC information for 2004 was still not fully compatible with the North America Industry Classification System (NAICS), with 262 of the 309 data at the fourth-digit level aligned to the USA. In addition, industrial information from the EC is recorded every four years, which prevents this study to use panel data techniques and it makes it impossible to use time series methods.

Policymakers can clearly identify competition forces having a significant impact on employment growth. This can orient policymakers to implement measures to encourage the development of some of these clusters, as well as to identify some of the sources that drive specialization, competition and diversity.

This paper contributes to the debate on the existence of Marshallian (MAR), Jacobian and Porter externalities. This is the first study using the definition of traded clusters in Mexico, which allows the authors to identify how specialization, competition and diversity forces drive the dynamics of regional employment growth.

The purpose of this paper is to examine partner specialization effects on audit fees in the US audit market.

This study exploits the unique environment created from the demise of Andersen to examine the effect of partner specialization on audit fees in the US audit market. An ordinary least squares regression was estimated from a sample of ex-Andersen clients that assumingly followed their ex-Andersen audit partner to the new audit firm.

The results show significant positive relations for both audit partner- and office-level specialization and audit fees and suggest that auditor specialization at both the partner- and local office-level demand a fee premium in the US audit markets. Furthermore, the results do not show a significant difference between partner- and office-level specialization effects on audit fees.

This study contributes to the audit quality literature by examining the effects of auditor specialization at both the office and partner levels on audit fees within a developed market. The results of this study should be of interest to academics, investors and regulators and help them in their assessments of audit quality.

This paper aims to examine the association between audit firm tenure and audit report lag (ARL) and the impact of auditor industry specialization on the association between audit firm tenure and ARL.

Using Habib and Bhuiyan’s (2011) method of measuring auditor industry specialization, the authors examine the sample of 7,291 firm-year observations from 2008 to 2010.

The authors find that auditor industry specialization (regardless of city-level, national-level and joint city- and national-level industry specialization) weakens the positive association between ARL and short audit firm tenure, suggesting that auditor industry specialization complements the negative effect of short audit firm tenure on ARL.

First, the authors add to the literature by answering the question of whether hiring industry auditor specialists is an effective way to shorten ARL created by short audit tenure. The authors provide some evidence that the concern of short audit tenure leading to longer ARL is reduced by hiring an industry-specialized auditor. Prior research mainly focuses on identifying the determinants of ARL without going further to find out which are the effective ways to reduce the audit delay. Second, their findings can somehow resolve the debate on whether audit firm rotation should be mandatory. A new auditor’s lack of knowledge of clients’ business operations during the early years of audit engagements results in longer ARL, which eventually influences the clients’ financial performance. The authors' result suggests the firms can reduce this adverse consequence by hiring an industry-specialized auditor. Finally, their findings may provide helpful information to firms in selecting external auditors, public accounting firms in selecting a differentiation strategy and regulators in mandating audit firm rotation.

Sustainability assurance services are carried out in a competitive market where a wide range of assurance providers operate without the need for any specific professional qualifications, competencies or skills. Assurance providers have heterogeneous professional backgrounds and experiences that lead to substantial diversity in sustainability assurance quality levels. This paper aims to provide an understanding of sustainability assurance quality. From a legitimacy perspective, the authors focus on the choice of assurance providers by exploring why a company voluntarily chooses an incumbent financial auditor to jointly provide audit and sustainability assurance services. The authors argue that to avoid the legitimacy threats undermining stakeholders’ confidence in the sustainability information disclosed, companies should only choose their incumbent financial auditors to provide sustainability assurance services when these auditors possess the professional attributes associated with sustainability assurance quality.

This study develops regression models for an international sample for 2007–2016, where the authors analyze why a company voluntarily chooses an incumbent auditor to jointly provide audit and sustainability assurance services from a legitimacy theory perspective.

Evidence confirms that the choice of incumbent auditors as assurance providers is more likely when these providers are more specialized in the industry. The authors also find that independence does not play a significant role in this decision. Therefore, an assurance provider’s industry specialization can be understood as an attribute that is associated with sustainability assurance quality and one which limits the legitimacy threats caused by a lack of sufficient sustainability knowledge.

Given that companies have complete freedom when choosing their assurance providers, the selection of a high-quality incumbent auditor is an indirect measure of social commitment and a mechanism to improve public trust. The results confirm that it is fundamental for firms to understand the situations when choosing an incumbent financial auditor to provide sustainability assurance services is the best way to ensure firm legitimacy while obtaining higher sustainability assurance quality due to the spillover effect. This paper provides useful evidence for firms and managers who can become aware that the legitimacy threat associated with the auditing profession’s questionable competence to conduct efficient sustainability assurance engagements can be reduced if they hire an incumbent financial auditor with greater industry specialization. For assurance providers, the results are especially useful, as they should know that companies will be more likely to choose their incumbent financial auditor when that auditor possesses certain professional attributes, like industry specialization. The ability to assimilate and exploit the knowledge gained through auditing activities can be improved even more by specialization, which enhances sustainability assurance quality.

From a social perspective, stakeholders perceive industry specialization as an indicator of the professional skills necessary to increase both the real and perceived quality of sustainability assurance services, thereby limiting the legitimacy threat arising from a lack of sustainability knowledge. The evidence also provides valuable results for regulatory bodies, as it shows that firms are not able to address the legitimacy gap caused by stakeholders’ perceptions that incumbent financial auditors can easily be controlled by companies. Thus, doubts arise as to whether this joint provision undermines auditor independence. Precisely, these doubts about assurance provider independence can erode public confidence in assurance and devalue the quality of the service. The results of this paper highlight the need to strengthen regulation on sustainability reporting and assurance. The advances and relevance of sustainable development in recent years and in future agendas require a firm commitment to sustainability reporting and assurance of quality, reliability, integrity and confidence.

First, this study contributes to recent empirical studies that focus on the role of sustainability assurance services in the legitimation process of corporate sustainability reporting. However, while that research analyzes how the legitimacy theory explains the voluntary adoption of sustainability assurance, this paper adds to the literature by presenting evidence about why certain incumbent auditors are appointed to carry out sustainability assurance services. Second, this paper contributes to the sustainability assurance quality literature. Third, unlike previous studies that have regressed various client-specific and institutional factors that influence firms’ decisions to choose assurance providers, this study contributes to the research by providing knowledge about a set of professional features that may explain the decision model of assurance providers selection from a legitimacy perspective.