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Managerial Ability and Audit Outcomes

Faizul Haque et al.

Journal of Accounting Auditing and Finance2025https://doi.org/10.1177/0148558x251335528article
AJG 3ABDC A
Weight
0.46

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.

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https://doi.org/https://doi.org/10.1177/0148558x251335528

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@article{faizul2025,
  title        = {{Managerial Ability and Audit Outcomes}},
  author       = {Faizul Haque et al.},
  journal      = {Journal of Accounting Auditing and Finance},
  year         = {2025},
  doi          = {https://doi.org/https://doi.org/10.1177/0148558x251335528},
}

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Evidence weight

0.46

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.37 × 0.4 = 0.15
M · momentum0.60 × 0.15 = 0.09
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.