Professional and Commercial Incentives in Audit Firms: Evidence on Partner Compensation

References

• Alchian, A. A., & Demsetz, H. (1972). Production, information costs, and economic organization. The American Economic Review, 62(5), 777–795.
   Web of Science ®Google Scholar
• Anderson-Gough, F., Grey, C., & Robson, K. (2000). In the name of the client: The service ethic in two professional services firms. Human Relations, 53(9), 1151–1174.
   Web of Science ®Google Scholar
• Baker, G. P., Jensen, M. C., & Murphy, K. J. (1988). Compensation and incentives: Practice vs. theory. The Journal of Finance, 43(3), 593–616.
   Web of Science ®Google Scholar
• Balachandran, B. V., & Ramakrishnan, R. T. S. (1987). A theory of audit partnerships: Audit firm size and fees. Journal of Accounting Research, 25(1), 111–126.
   Web of Science ®Google Scholar
• Bedard, J. C., Deis, D. R., Curtis, M. B., & Jenkins, J. G. (2008). Risk monitoring and control in audit firms: A research synthesis. Auditing: A Journal of Practice & Theory, 27(1), 187–218.
   Web of Science ®Google Scholar
• Boone, J. P., Khurana, I. K., & Raman, K. K. (2010). Do the Big 4 and the second-tier firms provide audits of similar quality? Journal of Accounting and Public Policy, 29(4), 330–352.
   Web of Science ®Google Scholar
• Brock, D. M. (2006). The changing professional organization: A review of competing archetypes. International Journal of Management Reviews, 8(3), 157–174.
   Web of Science ®Google Scholar
• Brown, P. R. (2013). How can we do better? Accounting Horizons, 27(4), 855–859.
   Web of Science ®Google Scholar
• Brown, V. L. (2017). The effects of manager-auditor affiliation and PCAOB inspection reports on audit committee members’ auditor selection. Current Issues in Auditing, 11(1), P1–P10.
   Web of Science ®Google Scholar
• Burrows, G., & Black, C. (1998). Profit sharing in Australian Big 6 accounting firms: An exploratory study. Accounting, Organizations and Society, 23(5–6), 517–530.
   Web of Science ®Google Scholar
• Carr, J., & Mathewson, F. (1990). The economics of law firms: A study in the legal organization of the firm. The Journal of Law and Economics, 33(2), 307–330.
   Web of Science ®Google Scholar
• Carter, C., & Spence, C. (2014). Being a successful professional: An exploration of who makes partner in the Big 4. Contemporary Accounting Research, 31(4), 949–981.
   Web of Science ®Google Scholar
• Che, Y.-K., & Yoo, S.-W. (2001). Optimal incentives for teams. American Economic Review, 91(3), 525–541.
   Web of Science ®Google Scholar
• Chenhall, R. H., & Moers, F. (2007). The issue of endogeneity within theory-based, quantitative management accounting research. European Accounting Review, 16(1), 173–196.
   Web of Science ®Google Scholar
• Chi, H.-Y., & Chin, C.-L. (2011). Firm versus partner measures of auditor industry expertise and effects on auditor quality. Auditing: A Journal of Practice & Theory, 30(2), 201–229.
   Web of Science ®Google Scholar
• Chin, C.-L., & Chi, H.-Y. (2009). Reducing restatements with increased industry expertise. Contemporary Accounting Research, 26(3), 729–765.
   Web of Science ®Google Scholar
• Coram, P., & Robinson, M. (2017). Professionalism and performance incentives in accounting firms. Accounting Horizons, 31(1), 103–123.
   Web of Science ®Google Scholar
• DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of Accounting and Economics, 3(3), 183–199.
   Google Scholar
• DeFond, M., & Zhang, J. (2014). A review of archival auditing research. Journal of Accounting and Economics, 58(2–3), 275–326.
   Web of Science ®Google Scholar
• De Franco, G., Gavious, I., Jin, J. Y., & Richardson, G. D. (2011). Do private company targets that hire Big 4 auditors receive higher proceeds? Contemporary Accounting Research, 28(1), 215–262.
   Web of Science ®Google Scholar
• Dyckman, T. R., & Zeff, S. A. (2014). Some methodological deficiencies in empirical research articles in accounting. Accounting Horizons, 28(3), 695–712.
   Web of Science ®Google Scholar
• Eisenhardt, K. M. (1988). Agency-and institutional-theory explanations: The case of retail sales compensation. Academy of Management Journal, 31(3), 488–511.
   Web of Science ®Google Scholar
• Eisenhardt, K. M. (1989). Agency theory: An assessment and review. Academy of Management Review, 14(1), 57–74.
   Web of Science ®Google Scholar
• Empson, L. (2007). Surviving and thriving in a changing world: The special nature of partnership. In L. Empson (Ed.), Managing the Modern Law firm (pp. 10–36). Oxford: Oxford University Press.
   Google Scholar
• Encinosa, W. E., Gaynor, M., & Rebitzer, J. B. (2007). The sociology of groups and the economics of incentives: Theory and evidence on compensation systems. Journal of Economic Behavior & Organization, 62(2), 187–214.
   Web of Science ®Google Scholar
• European Commission. (2006). Directive 2006/43/EC of the European Parliament and of the council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts. Brussels: European Union.
   Google Scholar
• European Commission. (2010). Green paper on audit policy: Lessons from the crisis. Brussels: European Union.
   Google Scholar
• European Union. (2013). Tackling the gender pay gap in the European Union. Luxembourg: Publications Office of the European Union.
   Google Scholar
• Fama, E. F., & Jensen, M. C. (1983). Agency problems and residual claims. The Journal of Law and Economics, 26(2), 327–349.
   Web of Science ®Google Scholar
• Farrell, J., & Scotchmer, S. (1988). Partnerships. The Quarterly Journal of Economics, 103(2), 279–297.
   Web of Science ®Google Scholar
• Francis, J. (2004). What do we know about audit quality? The British Accounting Review, 36(4), 345–368.
   Google Scholar
• Francis, J. (2011). A framework for understanding and researching audit quality. Auditing: A Journal of Practice & Theory, 30(2), 125–152.
   Web of Science ®Google Scholar
• Garicano, L., & Santos, T. (2004). Referrals. American Economic Review, 94, 499–525.
   Web of Science ®Google Scholar
• Gaynor, M., & Gertler, P. (1995). Moral hazard and risk spreading in partnerships. The RAND Journal of Economics, 26(4), 591–613.
   Web of Science ®Google Scholar
• Geens, K. (1997). Waarom associëren? In G. François & K. Deketelaere (Eds.), De uitoefening van een vrij beroep in vennootschapsvorm (pp. 17–26). Leuven: Acco.
   Google Scholar
• Gendron, Y. (2002). On the role of the organization in auditors’ client-acceptance decisions. Accounting, Organizations and Society, 27(7), 659–684.
   Web of Science ®Google Scholar
• Gendron, Y., Suddaby, R., & Lam, H. (2006). An examination of the ethical commitment of professional accountants to auditor independence. Journal of Business Ethics, 64(2), 169–193.
   Web of Science ®Google Scholar
• Greenwood, R., Hinings, C. R., & Brown, J. (1990). “P2-form” strategic management: Corporate practices in professional partnerships. Academy of Management Journal, 33(4), 725–755.
   Web of Science ®Google Scholar
• Greenwood, R., & Lachman, R. (1996). Change as an underlying theme in professional service organizations: An introduction. Organization Studies, 17(4), 563–572.
   Web of Science ®Google Scholar
• Greenwood, R., & Suddaby, R. (2006). Institutional entrepreneurship in mature fields: The big five accounting firms. Academy of Management Journal, 49(1), 27–48.
   Web of Science ®Google Scholar
• Gujarati, D. N. (2003). Basic Econometrics (4th ed.). New York: McGraw-Hill.
   Google Scholar
• Hardies, K., Vandenhaute, M.-L., & Breesch, D. (2018). An analysis of auditors’ going-concern reporting accuracy in private firms. Accounting Horizons, 32(4), 117–132.
   Web of Science ®Google Scholar
• Holmes, S., & Zimmer, I. (1998). The structure of profit sharing schemes in accounting partnerships. Accounting and Finance, 38(1), 51–70.
   Google Scholar
• Holmstrom, B. (1982). Moral hazard in teams. The Bell Journal of Economics, 13(2), 324–340.
   Google Scholar
• Holmstrom, B., & Milgrom, P. (1991). Multitask principal-agent analyses: Incentive contracts, asset ownership, and job design. Journal of Law, Economics, and Organization, 7(special issue), 24–52.
   Web of Science ®Google Scholar
• Huddart, S. (2013). Discussion of empirical evidence on the implicit determinants of compensation in Big 4 audit partnerships. Journal of Accounting Research, 51(2), 389–397.
   Web of Science ®Google Scholar
• Huddart, S., & Liang, P. J. (2003). Accounting in partnerships. American Economic Review, 93(2), 410–414.
   Web of Science ®Google Scholar
• Huddart, S., & Liang, P. J. (2005). Profit sharing and monitoring in partnerships. Journal of Accounting and Economics, 40(1), 153–187.
   Web of Science ®Google Scholar
• IOSCO. (2009). Consultation report: Transparency of firms that audit public companies. Madrid, Spain: IOSCO.
   Google Scholar
• Ittner, C. D., Larcker, D. F., & Pizzini, M. (2007). Performance-based compensation in member-owned firms: An examination of medical group practices. Journal of Accounting and Economics, 44(3), 300–327.
   Web of Science ®Google Scholar
• Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.
   Web of Science ®Google Scholar
• Johansen, T. R., & Christoffersen, J. (2017). Performance evaluations in audit firms: Evaluation foci and dysfunctional behaviour. International Journal of Auditing, 21(1), 24–37.
   Web of Science ®Google Scholar
• Kandel, E., & Lazear, E. P. (1992). Peer pressure and partnerships. Journal of Political Economy, 100(4), 801–817.
   Web of Science ®Google Scholar
• Knechel, R., Niemi, L., & Zerni, M. (2013). Empirical evidence on the implicit determinants of compensation in Big 4 audit partnerships. Journal of Accounting Research, 51(2), 349–387.
   Web of Science ®Google Scholar
• Knechel, W. R., Vanstraelen, A., & Zerni, M. (2015). Does the identity of engagement partners matter? An analysis of audit partner reporting decisions. Contemporary Accounting Research, 32(4), 1443–1478.
   Web of Science ®Google Scholar
• Kothari, S. P., Leone, A. J., & Wasley, C. E. (2005). Performance matched discretionary accrual measures. Journal of Accounting and Economics, 39(1), 163–197.
   Web of Science ®Google Scholar
• Lander, M., Koene, B., & Linssen, S. (2013). Committed to professionalism: Organizational responses of mid-tier accounting firms to conflicting institutional logics. Accounting, Organizations and Society, 38(2), 130–148.
   Web of Science ®Google Scholar
• Lang, K., & Gordon, P.-J. (1995). Partnerships as insurance devices: Theory and evidence. The RAND Journal of Economics, 26(4), 614–629.
   Web of Science ®Google Scholar
• Lawler, E. E. (1990). Strategic pay: Aligning organizational strategies and pay systems. San Francisco: Jossey-Bass.
   Google Scholar
• Lawler, E. E. (1995). The new pay a strategic approach. Compensation & Benefits Review, 27(4), 14–22.
   Google Scholar
• Lawler, E. E., & Cohen, S. G. (1992). Designing pay systems for teams. ACA Journal, 1(1), 6–19.
   Google Scholar
• Leibowitz, A., & Tollison, R. (1980). Free riding, shirking, and team production in legal partnerships . Economic Inquiry, 18(3), 380–394.
   Web of Science ®Google Scholar
• Levin, J., & Tadelis, S. (2005). Profit sharing and the role of professional partnerships. The Quarterly Journal of Economics, 120(1), 131–171.
   Web of Science ®Google Scholar
• Liu, X., & Simunic, D. A. (2005). Profit sharing in an auditing oligopoly. The Accounting Review, 80(2), 677–702.
   Web of Science ®Google Scholar
• Malhotra, N., Morris, T., & Hinings, C. R. (2006). Variation in organizational form among professional service organizations. In R. Greenwood & R. Suddaby (Eds.), Research in the sociology of organizations: Professional service firms ( Vol. 24, pp. 171–202). Greenwich, CT: JAI Press.
   Google Scholar
• Morris, T., & Pinnington, A. (1998a). Patterns of profit-sharing in professional firms. British Journal of Management, 9(1), 23–39.
   Google Scholar
• Morris, T., & Pinnington, A. (1998b). Promotion to partner in professional service firms. Human Relations, 51(1), 3–24.
   Web of Science ®Google Scholar
• Narayanan, V. G. (1995). Moral hazard in repeated professional partnerships. Contemporary Accounting Research, 11(2), 895–917.
   Google Scholar
• National Bank of Belgium (NBB). (2015). An overview of the companies that have filed consolidated annual accounts at the National Bank during the period 2002-2016 [Dataset]. Retrieved from https://www.nbb.be/doc/ba/filing/conso/conso2002-2016.xlsx
   Google Scholar
• Ooghe, H., & Spaenjers, C. (2005). De FiTo (R)-meter: een nieuwe, eenvoudige en geïntegreerde maatstaf voor de financiële toestand van een onderneming. Accountancy & Bedrijfskunde, 25(3), 5–14.
   Google Scholar
• Pizzini, M. (2010). Group-based compensation in professional service firms: An empirical analysis of medical group practices. The Accounting Review, 85(1), 343–380.
   Web of Science ®Google Scholar
• Pratt, J., & Stice, J. D. (1994). The effects of client characteristics on auditor litigation risk judgments, required audit evidence, and recommended audit fees. The Accounting Review, 69(4), 639–656.
   Web of Science ®Google Scholar
• Prendergast, C. (1999). The provision of incentives in firms. Journal of Economic Literature, 37(1), 7–63.
   Web of Science ®Google Scholar
• Public Company Accounting Oversight Board (PCAOB). (2015). Concept release on audit quality indicators. Release. Washington, DC.
   Google Scholar
• Ramirez, C. (2009). Constructing the governable small practitioner: The changing nature of professional bodies and the management of professional accountants’ identities in the UK. Accounting, Organizations and Society, 34(3), 381–408.
   Web of Science ®Google Scholar
• Salterio, S. E. (2014). We don’t replicate accounting research—Or do we? Contemporary Accounting Research, 31(4), 1134–1142.
   Web of Science ®Google Scholar
• Shamir, B. (1990). Calculations, values, and identities: The sources of collectivistic work motivation. Human Relations, 43(4), 313–332.
   Web of Science ®Google Scholar
• Spence, C., & Carter, C. (2014). An exploration of the professional habitus in the Big 4 accounting firms. Work, Employment and Society, 28(6), 946–962.
   Web of Science ®Google Scholar
• Suddaby, R., Gendron, Y., & Lam, H. (2009). The organizational context of professionalism in accounting. Accounting, Organizations and Society, 34(3), 409–427.
   Web of Science ®Google Scholar
• Sundgren, S., & Svanström, T. (2014). Auditor-in-charge characteristics and going-concern reporting. Contemporary Accounting Research, 31(2), 531–550.
   Web of Science ®Google Scholar
• Sundgren, S., & Svanström, T. (2017). Is the public oversight of auditors effective? The impact of sanctions on loss of clients, salary and audit reporting. European Accounting Review, 26(4), 787–818.
   Web of Science ®Google Scholar
• Tjosvold, D. (1986). The dynamics of interdependence in organizations. Human Relations, 39(6), 517–540.
   Web of Science ®Google Scholar
• Trompeter, G. (1994). The effect of partner compensation schemes and generally accepted accounting principles on audit partner judgment. Auditing, 13(2), 56–68.
   Web of Science ®Google Scholar
• Tsang, E. W. K., & Kwan, K.-M. (1999). Replication and theory development in organizational science: A critical realist perspective. Academy of Management Review, 24(4), 759–780.
   Web of Science ®Google Scholar
• Van Lent, L. (1996). The economics of an Audit FRM: The case of KPMG in the Netherlands. FEW Research Memorandum; Vol. 730, (Tilburg: Accounting).
   Google Scholar
• Van Lent, L. (1999). The economics of an audit firm: The benefits of partnership governance. The British Accounting Review, 31(2), 225–254.
   Google Scholar
• Von Nordenflycht, A. (2010). What is a professional service firm? Toward a theory and Taxonomy of knowledge-Intensive firms. Academy of Management Review, 35(1), 155–174.
   Web of Science ®Google Scholar
• White, H. (1980). A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica: Journal of the Econometric Society, 48(4), 817–838.
   Web of Science ®Google Scholar
• Wittek, R., van der Zee, T., & Mühlau, P. (2008). Client acceptance decisions of Dutch auditing partners. Journal of Management & Governance, 12(1), 93–115.
   Google Scholar
• Wyatt, A. R. (2004). Accounting professionalism—They just don't get it!. Accounting Horizons, 18(1), 45–53.
   Google Scholar
• Young, G. J., Beckman, H., & Baker, E. (2012). Financial incentives, professional values and performance: A study of pay-for-performance in a professional organization. Journal of Organizational Behavior, 33(7), 964–983.
   Web of Science ®Google Scholar
• Zeff, S. A. (2003a). How the U.S. accounting profession got where it is today: Part I. Accounting Horizons, 17(3), 189–205.
   Google Scholar
• Zeff, S. A. (2003b). How the U.S. accounting profession got where it is today: Part II. Accounting Horizons, 17(4), 267–286.
   Google Scholar