Working Paper: What's in a Name? Reputation and Monitoring in the Audit Market

​​​​​​Paper authors: Somdutta Basu and Suraj Shekhar

Abstract: We study incentives under different information regimes by analyzing a rule change in the audit industry in the USA. Since February 2017, the name of the engagement partner has to be disclosed for all audit reports issued in the USA. We show that this quest for transparency has its pitfalls despite the increase in the level of information for investors. While the higher reputation building incentives can improve audit quality, an unintended consequence of the rule is that audit partners have a lower incentive to monitor other partners when names are disclosed. We find conditions under which the latter effect dominates the former.

Download the Paper

    Disclaimer

    ​​The economic research fellows and staff economists generate high-quality working papers that inform the oversight activities of the PCAOB and are disseminated to stimulate discussion and crit​ical comment to the benefit of the public. ​Working papers are preliminary materials that have not been approved by the Board and reflect only the views of the author(s). 

    The research topics of economic research fellows​, including a description of any nonpublic data sets required for research, are presented to the Board for approval and research papers are reviewed to confirm that the topic of the paper is consistent with the researcher's proposal. That review does not, however, encompass an evaluation of the conclusions reached by researchers​.​​​