The Importance of Organizational Culture in Achieving Audit Quality : Evidence from the Adoption of Equalized Parental Leave

Large accounting firms invest considerable resources into employee talent, yet we know little about whether, and when, such policies affect audit outcomes. Economic theory predicts policies that alter firm culture may be more impactful to organizational performance. Therefore, I investigate whether one initiative intended to promote a family-supportive culture, the adoption of equalized parental leave, results in higher audit quality. I use a generalized difference-in-differences approach and find that audit quality improves following the adoption of equalized leave. I also show that this is moderated by office-level employee demographics that reflect labor economics and work-life conflict. Finally, I use hand-collected employee job reviews to show that improved job satisfaction is one mechanism that drives these findings. This study informs academic literature and practitioners on the importance of managing audit firm culture, builds on the broader literature of economic impacts of paid family leave, and highlights one effective talent management strategy