The effect of SOX on small auditor exits and audit quality

Mark L. DeFond, Clive S. Lennox

Research output: Contribution to journalArticlepeer-review

194 Citations (SciVal)


We find that over six hundred auditors with fewer than 100 SEC clients exit the market following SOX. Compared to the non-exiting auditors, the exiting auditors are lower quality, where quality is gauged by: (1) avoidance of AICPA peer reviews and failure to comply with PCAOB rules, and (2) severity of the peer review and inspection reports. In addition, clients of exiting auditors receive higher quality auditing from successor auditors, as captured by a greater likelihood of receiving going concern opinions. Our results suggest that the PCAOB inspections improve audit quality by incentivizing low quality auditors to exit the market.
Original languageEnglish
Pages (from-to)21-40
Number of pages20
JournalJournal of Accounting and Economics
Issue number1
Publication statusPublished - 1 Jun 2011


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