Does Engagement Partner Perceived Expertise Matter? Evidence from the U.S. Operations of the Big 4 Audit Firms

Abstract

This study investigates whether perceived engagement partner industry specialization matters in the U.S. setting, where the name of the engagement partner is currently not disclosed to the capital market participants. Using a unique engagement partner dataset for the U.S. operations of the Big 4 firms, we find that engagements led by industry specialist partners command higher fees and a higher rate per hour. However, the economic significance of these results does not appear to be as large as in settings where the name of the engagement partner is disclosed. Furthermore, we do not find any association between engagement partner industry specialization and several proxies for audit quality, even though we find a positive association with audit hours. These results suggest that, at least in the U.S. setting, there is a dichotomy between the client perceived value and the actual value provided by an industry specialist engagement partner, consistent with audits suffering from credence goods agency issues.