How Do Auditors Increase Substantially Firm Value?

Abstract

This study used Tobin’s Q to examine the relationship between various types of auditors (e.g., industry expert, supply chain auditor) and market participants in order to determine the effects on firm value. Our results indicate that market participants highly value Big 4 supply chain auditors with industry experience and that these impressions are extended to their evaluation of their clients. We also found that only in the subsample of long-term auditor-client relationships were Big 4 supply chain auditor with industry experiences is auditors associated with higher firm value. This is consistent with previous literature indicating that the tenure of auditors does not affect audit quality (Myers, Myers, & Skinner, 2007; Myers, Myers, & Omer, 2003). The inclusion of different supply chain streams revealed that up-stream supply chain auditors are more likely than middle and down-stream supply chain auditors to receive favorable reactions from market participants. This is an indication that market participants are impressed by the specific expertise and knowledge of these professionals.