Audit quality and executive officers’ affiliations with CPA firms

Executives are ‘affiliated’ if they previously worked for their companies’ audit firms. I find most affiliations (71.3%) occur when auditors become employees of audit clients (‘employment affiliations’), but affiliations also arise when companies hire executives’ former CPA firms (‘alma mater affiliations’). Affiliated companies are significantly more likely than unaffiliated companies to receive clean audit opinions—this finding holds for both employment and alma mater affiliations. Executive turnover is significantly lower for affiliated executives than for unaffiliated executives following the issuance of clean audit opinions—this suggests companies perceive affiliations are more valuable after they receive clean audit opinions.