Auditors’ Inter-Organizational Vertical Mobility and Its Consequences for Audit Quality

Using a set of unique databases from China, with employment history of auditors, details of audit engagement partners and financial reporting quality, we examine the performance of auditors that moved up to another higher-tier audit firm. We show that the audit quality of signing auditors with vertical (upward) inter-organizational mobility is significantly better than that for signing auditors that do not have such vertical mobility. Vertically mobile auditors also have a higher propensity of becoming partners when their limited liability audit firms transform to special general partnerships. To control for self-selection bias, we further estimate the unexpected component of a move and show that all our results still hold. Overall, this paper provides evidence that auditors with vertical mobility perform better on their new jobs when compared to those that move to audit firms of similar status or never change firms