Management Influence on Auditor Selection and Subsequent Impairments of Auditor Independence during the Post-SOX Period

This study investigates the influence of management over auditor selection decisions during a period in which audit committees have "direct responsibility" for auditor selection. We find that contrary to the intent of Sarbanes-Oxley Act (SOX), management appears to retain significant influence over auditor selection in the subset of companies that select Big 4 auditors and this is not mitigated by higher-quality audit committees. As SOX presumes that management influence over auditor selection leads to negative outcomes, we also examine the impact that management influence on auditor selection has on proxies for subsequent auditor independence during the post-SOX period. We find no consistent evidence that audit quality is different for companies whose managers appeared to influence auditor selection, where audit quality is measured by the propensity to issue going-concern opinions, the propensity to meet or just beat analyst earnings forecasts, and abnormal accruals. We also find no consistent evidence that the quality of the audit committee influences the relationship between audit quality and management influence on auditor selection.