Semester Award Granted
Summer 2025
Submission Date
August 2025
Document Type
Dissertation
Degree Name
Doctor of Philosophy (PhD)
Thesis/Dissertation Advisor [Chair]
Julia Higgs
Thesis/Dissertation Co-Chair
Jian Cao
Abstract
In this study, I investigate how a firm’s life cycle stage (introduction, growth, maturity, shakeout, and decline) influences the selection of a high-quality, industry-expert auditor. Theory suggests that auditor selection serves as a signal of financial reporting quality and plays a role in mitigating agency costs. In my first hypothesis, I predict that firms in the growth and mature stages are more likely to engage high-quality auditors. The results support this prediction relative to decline stage firms, although the likelihood of engaging an expert auditor is not significantly different between growth and introduction or shakeout firms, nor between mature and introduction or shakeout firms. These results align with signaling theory, as growth and mature firms are more inclined to invest in top-tier auditors to signal their quality. In my second hypothesis, I examine whether financial reporting quality, proxied by performance-adjusted abnormal accruals, varies across life cycle stages when an expert auditor is engaged. The results show meaningful differences in reporting quality across stages under expert auditor engagement. When comparing expert and non-expert auditor engagements within each life cycle stage, the association with stronger reporting quality appears most evident for growth and mature firms. Additional robustness tests, using alternative measures of auditor expertise and different accrual-based proxies of financial reporting quality, further support these findings. The findings in this paper suggest that audit committees should consider the life cycle stage in the auditor selection process. Audit firms can use these findings in client acceptance and continuance decisions.
Recommended Citation
Upama, Tanzila, "INDUSTRY EXPERT AUDITORS, FINANCIAL REPORTING QUALITY, AND FIRM LIFE CYCLE" (2025). Electronic Theses and Dissertations. 149.
https://digitalcommons.fau.edu/etd_general/149