Auditor Choice: After Enron

Abstract

In this study, the author examines the choice of auditor for firms who had contracted with Arthur Andersen prior to its collapse in the aftermath of Enron.  This study was motivated by previous research on factors affecting the choice, including but not limited to size, geography, industry and financial condition.  The results, in general, indicate that the choice among the Big Four accounting firms is not affected by these variables.  This opens two possibilities: either that the choice is based on less tangible factors or such factors are overwhelmed by the size of the Big Fours accounting firms.  However, when considered together, multivariate discriminant analysis (MDA) develops a model that is able to predict which firm will be chosen at a significantly higher than simply guessing among the Big Four CPA firms.  This result is driven by the results of two of the four firms.