Working Paper: Heterogeneity in Expertise in a Credance Goods Setting: Evidence from Audit Partners

Paper Author: Daniel Aobdia, Saad Siddiqui and Andrés Vinelli

Abstract: This study investigates whether engagement partner industry specialization matters in the U.S. setting, prior to public disclosure of their names. Using unique datasets available for the U.S. operations of the Big 4 firms, we find that engagements led by industry specialist partners command higher fees and are more profitable. However, we do not find any positive association between engagement partner industry specialization and financial reporting quality, with the exception of clients that audit firms deem to be higher risk and that require more extensive audits. Our results are consistent with a model of credence goods whereby clients are uncertain about how much audit effort they require. Ex ante, they pay industry specialist partners a premium in case they ex post require more extensive audits, and to ensure the proper provision of services.