Professional Affiliation Bias among CPAs and Attorneys at Publicly Traded US Firms

Abstract

This study investigates whether or not accounting and legal decision-makers at publicly traded US firms exhibit a professional affiliation bias with respect to their selection of business service providers. Executives at NYSE or NASDAQ firms who were affiliated with the accounting profession, the legal profession, or neither profession indicated their likelihood of using one of three randomly assigned types of firms (i.e., a CPA firm, a law firm, or a firm with both CPA and attorney partners) to provide five selected business services. The five business services represent the range of accounting and legal services that firms often outsource: audit, tax representation, mergers and acquisitions, trade regulation/interstate commerce, and litigation. We find that executive level decision-makers at publicly traded US firms do exhibit a professional affiliation bias in the selection of business service providers and that this professional affiliation bias is stronger in attorneys than in CPAs. The fact that all respondents were NYSE or NASDAQ executives, rather than students or another surrogate population, provides additional relevance and generalizability to our findings. Identifying this bias can help executives avoid suboptimal initial selection decisions and/or inaccurate performance evaluations of external business service providers.