Abstract
This study investigates the value of auditor industry specialization. In the first step, we use a discrete choice model to derive the first-order demand for auditor industry specialization. Our results reveal that clients have a general preference for auditor industry specialization, relating to both audit firm and audit office specialization. Further, we observe that specializations at the audit firm and audit office are substitutes. We also find that larger and more complex clients have a stronger demand for specialization at the audit office but not the audit firm level. In the second step, we use the results from the discrete choice model to quantify the value of auditor industry specialist for clients. We find that the aggregate value of industry specialization for all clients is around 5 million US dollars and that it shapes the audit market as losing it results in the loss of approximately 5% of clients.
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