Auditor sanction and reputation damage: Evidence from changes in non-client-company directorships |
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| Institution: | 1. Shenzhen Audencia Business School, Shenzhen University, Shenzhen, 518060, China;2. Audencia Business School, Nantes, 44300, France;3. Department of Finance, Strome College of Business, Old Dominion University, Norfolk, VA, 23529, USA;4. Department of Accounting, College of Business, San Francisco State University, San Francisco, CA, 94132, USA;1. School of Commerce, University of South Australia, Adelaide, Australia;2. Institute of Management Accountants, Montvale, NJ, USA;1. University Rey Juan Carlos, Paseo Artilleros s/n, 28032, Madrid, Spain;2. Santalucía and Universidad Complutense de Madrid, Spain;3. Universidad Complutense de Madrid and Instituto Complutense de Análisis Económico, Spain;1. Department of Economics and Management “Marco Fanno”, University of Padua, Italy;2. School of Business and Management, Centre for Research Into Sustainability (CRIS), Centre for Critical and Historical Research on Organisation and Society (CHRONOS), Royal Holloway University of London, Egham, Surrey, TW20 0EX, UK;1. Manchester Accounting and Finance Group, University of Manchester, Booth Street West, Manchester M15 6PB, UK;2. Business School, University College Cork, College Road, Cork, Ireland;3. Accounting and Finance Group, Leeds Business School, Leeds University, LS2 9JT, UK;1. Kate Tiedemann College of Business, University of South Florida-St. Petersburg, St. Petersburg, FL, 33701, United States;2. Manning School of Business, University of Massachusetts Lowell, Lowell, MA, 01854, United States;3. School of Management, University at Buffalo-SUNY, Buffalo, NY, 14260, United States |
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| Abstract: | This study examines whether audit partners who have also served on the boards of directors of companies other than the audit firms' clients lose their directorships after they are sanctioned. Using 2002–2015 Taiwanese samples, the empirical results at the company level show that sanctioned audit partners, particularly those with a serious sanction, are less likely to gain or retain their directorships than the non-sanctioned ones following sanctions. Moreover, the results at the individual level show that, among the audit partners already serving as directors, those who have a serious sanction hold fewer directorships and are more likely to exit the director market than the non-sanctioned ones. Among the audit partners not yet holding director positions, those who have been sanctioned, regardless of the sanction severity, are less likely to enter the director market than the non-sanctioned ones. These contrasting results suggest asymmetric reputation penalties for existing partner directors and potential partner directors following auditor sanctions. Overall, sanctions damage auditors’ reputation capital, and the adverse consequences spill over into the director market. |
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| Keywords: | Audit failure Auditor sanction Directorship Reputation penalty |
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