Attributes affecting auditor choices

The purpose of this project is to examine how the choice of auditors in a small client market is influenced by client attributes. We examine the issue of audit quality using data from Finland because small companies are required by law to have an audit but there exist three distinct levels of professional quality from which an organization can choose an auditor. We use data on 2615 firms. Separate analyses were done for the very smallest firms, middle groups as well as for the largest firms in the sample. We study whether the complexity of the firm, the expected demand for external capital, the leverage as well as the competitiveness in the industry in which the firm operates affects the auditor choice. Very small firms are more likely to select a certified auditor if they are larger, more dominant or have a relatively high level of salaries, suggesting companies that may be small but are potentially rising higher. For the middle group of companies, salaries become less important but higher auditor quality is associated with higher leverage and measures of the competitiveness of the industry. Finally, among large firms in the sample, a Big 6 firm is preferred for larger, more dominant companies that are publicly listed but which possess relatively higher salaries and slightly poorer performance.