We show that a firm’s likelihood of appointing auditors with industry expertise or with a larger office increases after the firm is affected by an exogenous reduction in analyst coverage, relative to its matched control firms. This effect is stronger for affected firms with greater reductions in analyst monitoring, for smaller or younger firms, for firms with lower institutional or CEO ownership, and when the lost analysts are more effective monitors. We further show that affected firms that switch to high-quality auditors receive more positive market reaction, experience smaller decrease in stock liquidity and smaller increase in cost of equity capital relative to other affected firms, suggesting that audit quality has real payoffs. These results collectively provide causal evidence supporting the agency incentive driven demand for high-quality external auditing.

中文翻译：

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分析师覆盖面的外生损失和审计质量的选择

我们表明，相对于匹配的控制公司而言，公司受到分析师覆盖率外生减少的影响后，公司任命具有行业专业知识或具有更大办公室的审计师的可能性增加。对于分析师监督减少程度较大的受影响公司、较小或较年轻的公司、机构或 CEO 所有权较低的公司以及失去的分析师是更有效的监督者，这种影响会更强。我们进一步表明，与其他受影响的公司相比，改用高质量审计师的受影响公司获得了更积极的市场反应，股票流动性下降幅度较小，股本成本增加幅度较小，这表明审计质量具有真正的回报。