University-Level Recruiting and Black Underrepresentation in the Auditing Profession

Abstract

For decades, Blacks have been earning accounting degrees at high rates and, since the 1960s, the auditing profession has been making highly publicized efforts to increase the hiring and retention of Blacks. Yet, today, Blacks remain underrepresented among auditors. Why? One theory is that Black underrepresentation in auditing is partially a consequence of the recruiting practices of auditing firms, which some argue is targeted at universities with few Black graduates. In this study, we use novel data on the hiring practices of auditing firms to test this theory and find evidence that big N and non-big N audit firms hire significantly fewer graduates from universities with high levels of Black representation, a result that is robust to the inclusion of a number of controls including measures of university, business school, and accounting program quality. Our results could be explained as a consequence of demand-side forces, in which low audit firm demand for Black workers causes them to hire less from universities with high Black representation, or supply-side forces, in which a low supply of qualified Black workers causes it. Our evidence suggests that the negative association we document between high Black representation and audit firm hiring is likely a consequence of both demand-side and supply-side forces, but that a significant portion of the problem could be corrected at low cost and without reducing the quality of people hired if audit firms were to reallocate recruiting resources across schools.