The influence of professional ties on the selection of audit firms. Emperical findings from the German market

Abstract

This study investigates the influence of professional ties on the selection of an audit firm. A distinction is made between three different levels of professional ties; ties between either executive, non-executive or non-board members and audit firms. The data consist of listed firms from Germany in the period 2000 to 2016. Previous literature frequently investigated the influence of networks on audit quality. However, these researches failed to link the role of professional ties on the selection of an audit firm, whereas the audit firm has a major influence on the quality of the audit. The results of this study confirm that there is a positive effect of professional ties on the probability to choose the connected audit firm. Besides, the influence of an executive tie is higher than the influence of a non-executive tie. The results furthermore suggest that, the more professional ties between a firm and an audit firm, the higher the probability to select the connected audit firm. The findings of this study do not give any reason to set requirements against the presence of professional ties, but provide evidence that these ties influence the selection of an audit firm.