Thursday, September 26, 2024

The Influence of Labor Market Power in the Audit Profession

The Influence of Labor Market Power in the Audit Profession

 

Daniel Aobdia

Pennsylvania State University - Smeal College of Business

Qin Li

Hong Kong Polytechnic University

Ke Na

Cheung Kong Graduate School of Business

Hong Wu

Fudan University

 

Abstract

This paper examines the influence of labor market power in the audit profession. Using a dataset of online job postings, we confirm that audit offices in more concentrated labor markets have greater labor market power and exercise it in the form of higher skill requirements and greater required effort from their auditors, at similar or slightly lower wages. We then show that client firms of audit offices in more concentrated labor markets are less likely to restate their earnings and have lower absolute discretionary accruals. These findings are only present when employees have lower mobility across professions and geographies, consistent with audit offices’ power in the local labor market explaining the results. Collectively, our findings highlight the importance of labor market power in understanding audit quality.

https://lawprofessors.typepad.com/antitrustprof_blog/2024/09/the-influence-of-labor-market-power-in-the-audit-profession.html

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