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  1. William J. Cenker
  2. Albert L. Nagy




    The increase of Big 4 auditor resignations in the newly regulated auditing
    environment creates a rich setting to examine the supply-side effects of auditor industry
    specialization. The authors estimate logistic regressions to examine whether audit firms
    consider industry specialization at both the local and national levels when deciding on
    whether to retain or resign from audit clients. The results show a negative relation
    between auditor industry specialization and auditor resignations when the auditor is a
    joint specialist _i.e., a specialist at both the national and local levels_ and when the
    auditor is a local specialist only _i.e., a local specialist but not a national specialist_. The
    national specialization alone variable _i.e., the auditor is a national specialist but not a
    local specialist_ is not significant for our primary analysis; however, additional analyses
    reveal that the significance of this variable varies when incorporating alternative measurements
    for auditor specialization in the models. Thus, the overall evidence of the
    national specialization effect on the auditor’s resignation decision is mixed and inconclusive
    at this point. Based on the additional analyses, the joint and the local specialization
    effects generally appear to be robust. As such, we conclude that auditors perceive
    their firms’ industry expertise, particularly at the local level, as reducing both
    clientele mismatch and litigation risks, and hence improving audit quality.


    Vol 22, Nomor 03, Tahun 2008


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