Doctor of Philosophy (PhD)



Document Type



I investigate whether high-quality audit committees (ACs) prefer high-quality auditors. I then examine the benefits of high-quality ACs engaging high-quality auditors. The prediction is that high-quality ACs (i.e. those composed of members with industry expertise) will be more likely to choose high-quality auditors (i.e. Big 4/Mid-tier firms and industry specialist auditors) in order to preserve the reputational capital they have built as financial monitors. Further, improvement to financial reporting quality (FRQ) is expected to occur when an industry specialist AC engages a Big4/Mid-tier auditor (i.e. complementary relationship). On the other hand, it is expected that any incremental improvement to FRQ when a specialist AC engages a specialist auditor will be de minimis due to the diminishing marginal returns to specialization and the strategic relationship between the auditor and the client (i.e. substitutionary relationship). However, in measuring whether the market values the alignment of a high-quality AC and auditor, the prediction is that the market will appreciate high-quality ACs that employ high-quality auditors as the financial statements receive the utmost level of oversight. The results herein are generally consistent with the expectations. An interesting exception is that some measures of industry specialist ACs are negatively associated with FRQ when industry specialist ACs have not engaged a high-quality auditor. Moreover, industry specialist auditors absent the presence of an industry specialist AC are also negatively associated with certain FRQ proxies. This study sheds light on how auditors and auditees align, the substitutionary and complementary relationship of specialists, and parties that the market perceives as affecting information asymmetry.



Committee Chair

Reichelt, Kenneth J



Available for download on Friday, March 21, 2025

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