Changes in Big N Auditors’ Client Selection and Retention Strategies Over Time

62 Pages Posted: 27 Dec 2018 Last revised: 18 Jun 2020

See all articles by Daniel Aobdia

Daniel Aobdia

Northwestern University - Kellogg School of Management

Luminita Enache

University of Calgary; Dartmouth College - Tuck School of Business

Anup Srivastava

University of Calgary - Haskayne School of Business

Date Written: July 17, 20

Abstract

We examine changes over time in Big N auditors’ client selection and retention strategies, from 1970 to 2015, by client size and risk segments. We particularly focus on the period from 1997 to 2001, characterized by numerous tumultuous events that led to the Sarbanes-Oxley Act of 2002 (SOX). We find that Big N auditors shed en masse the smallest and riskiest clients during this tumultuous phase. Our results show that the initial impetus for the change in Big N’s client selection strategies at the dawn of the 21st century came from changes in the market conditions, not the demise of Arthur Andersen and the implementation of SOX, as concluded in prior literature. Those changes led to the current divide between the characteristics of Big N and non-Big N client segments that is taken for granted today. Our findings also shed light on the debate about the Big N association with audit quality. While we find existence of a Big N effect, we also find that this effect is highly correlated with, and appears and disappears with, changes in Big N’s client screening criteria.

Keywords: Competitive Structure, Public Companies, Oligopoly, Big N Audit Firms, Audit Risks, Audit quality, Dotcom Boom and Bust

JEL Classification: M4, M41, M49

Suggested Citation

Aobdia, Daniel and Enache, Luminita and Srivastava, Anup, Changes in Big N Auditors’ Client Selection and Retention Strategies Over Time (July 17, 20). Available at SSRN: https://ssrn.com/abstract=3275570 or http://dx.doi.org/10.2139/ssrn.3275570

Daniel Aobdia

Northwestern University - Kellogg School of Management ( email )

2211 Campus Drive
Evanston, IL 60208
United States

Luminita Enache

University of Calgary ( email )

140 Scanlon Green NW
Calgary, Alberta T3L1N3
Canada
5874389015 (Phone)

HOME PAGE: http://haskayne.ucalgary.ca/haskayne_info/profiles/luminita-enache

Dartmouth College - Tuck School of Business ( email )

140 Scanlon Green NW
Calgary, Alberta T3L1N3
Canada
5874389015 (Phone)

HOME PAGE: http://haskayne.ucalgary.ca/haskayne_info/profiles/luminita-enache

Anup Srivastava (Contact Author)

University of Calgary - Haskayne School of Business ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

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