Faizul Haque, Prem Puwanenthiren, Md Samsul Alam and Sivathaasan Nadarajah 2025. Managerial Ability and Audit Outcomes. Journal of Accounting, Auditing & Finance. Advanced online publication. https://doi.org/10.1177/0148558X251335528
| Title | Managerial Ability and Audit Outcomes |
|---|---|
| Type | Journal article |
| Authors | Faizul Haque, Prem Puwanenthiren, Md Samsul Alam and Sivathaasan Nadarajah |
| Abstract | We examine the role of client firms’ managerial ability in audit outcomes, encompassing financial restatements, opinions on internal controls, audit fees, audit effort, and the likelihood of receiving a going-concern opinion. Using a sample of 35,252 firm-year observations of US nonfinancial firms, we find a statistically significant association between managerial ability and audit outcomes. This suggests that firms with high-ability managers experience fewer financial restatements, reduced internal control issues, lower audit fees, shorter audit report lags, and a decreased likelihood of receiving a going-concern opinion. This evidence is robust to various endogeneity tests, including a natural experiment, propensity score matching, and an instrumental variable approach. Moreover, we show that the impact of high-ability managers on audit outcomes is more pronounced for client firms that suffer from weak governance oversight, deal with severe information asymmetry, are far away from auditors, and lack industry-specific auditor expertise, which supports the case for the substitution effects of managerial ability. Overall, our empirical evidence is distinctive and has implications for client firms, auditors, and policymakers. |
| Journal | Journal of Accounting, Auditing & Finance |
| ISSN | 0148-558X |
| 2160-4061 | |
| Year | 2025 |
| Publisher | Sage |
| Publisher's version | License CC BY-NC 4.0 File Access Level Open (open metadata and files) |
| Digital Object Identifier (DOI) | https://doi.org/10.1177/0148558X251335528 |
| Publication dates | |
| Published online | 21 Apr 2025 |