Daniel Aobdia

Are Immigrants Complements or Substitutes? Evidence from the Audit Industry

Extensive debate exists among policy makers and economists about the employment of highly skilled immigrants in the U.S. It remains unclear whether these immigrants perform complementary tasks in addition to their substitutive role relative to native graduates. Empirical studies examining these questions in a focused setting are scarce, principally because of nonavailability of data. We examine these questions using the audit industry as a setting because of availability of client, city, and office characteristics data at each audit office. This setting also allows us to answer whether immigration can address the growing human capital constraint in the audit industry. We find evidence of a complementary role of highly skilled immigrants. In addition, our results indicate a reputational spillover of client restatements at the audit office level to the labor markets. Our findings have immigration and education policy implications.

Does the Organization and Culture of the Largest Audit Firms Influence Their Audit Quality and Efficiency

This study seeks to determine the role of audit firms’ quality control (QC) system deficiencies, as measured by the Public Company Accounting Oversight Board (PCAOB) inspection program, on audit quality and profitability. Using a unique dataset of firm-wide QC deficiencies identified by the PCAOB during its inspections of audit firms, I find a negative association between QC deficiencies, mainly performance-related, and audit quality. Furthermore, audits conducted by larger audit firms with more organization-level deficiencies appear less profitable, evidenced by more hours worked on the engagements, leading to lower fees per hour. These results appear to be partly explained by deficiencies in the tone at the top (a proxy for culture) and the audit methodology. Further evidence suggests that lack of remediation of QC system deficiencies has a negative influence on audit quality.

The Economic Impact of the Employment of Foreign-Born Graduates in the Auditing Industry

Extensive debate exists among policy makers and economists about the employment of highly skilled immigrants in the U.S. It remains unclear whether these immigrants perform complementary tasks in addition to their substitutive role relative to native graduates. Empirical studies examining these questions in a focused setting are scarce, principally because of nonavailability of data. We examine these questions using the audit industry as a setting because of availability of client, city, and office characteristics data at each audit office. This setting also allows us to answer whether immigration can address the growing human capital constraint in the audit industry. We find evidence of a complementary role of highly skilled immigrants. In addition, our results indicate a reputational spillover of client restatements at the audit office level to the labor markets. Our findings have immigration and education policy implications.

Investor Cost Basis and Takeover Bids

This study examines how institutional investors’ cost bases impact takeover offer prices and the likelihood of deal success. We find evidence consistent with the ‘disposition effect’ - a reluctance to realize losses. After controlling for pre-bid prices, cost basis has a positive association with both offer prices and the likelihood of deal acceptance. We find that this behavior is mostly concentrated within short term focused, transient investors. We also use post-bid-rejection returns to provide evidence that the disposition effect, rather than private information, drives the rejection of bids with offer prices that fall short of the average cost basis.

Political Connections and Government Subsidies: State-Level Evidence

We examine the role of political connections in US state government-awarded corporate economic incentives, and whether a role (if present) is cause for constituent concern. We find that companies are more likely to receive an incentive award in a politically connected state and this association is stronger when politicians’ motives appear to be self-serving. Although equity investors react more positively to announcements of incentives awarded to politically connected companies, politically connected awards are associated with lower local future economic growth. Our analyses suggest that government incentives awarded to politically connected firms are a less effective allocation of taxpayer funds.

The Economic Consequences of Audit Firms’ Quality Control System Deficiencies

This study seeks to determine the role of audit firms’ quality control (QC) system deficiencies, as measured by the Public Company Accounting Oversight Board (PCAOB) inspection program, on audit quality and profitability. Using a unique dataset of firm-wide QC deficiencies identified by the PCAOB during its inspections of audit firms, I find a negative association between QC deficiencies, mainly performance-related, and audit quality. Furthermore, audits conducted by larger audit firms with more organization-level deficiencies appear less profitable, evidenced by more hours worked on the engagements, leading to lower fees per hour. These results appear to be partly explained by deficiencies in the tone at the top (a proxy for culture) and the audit methodology. Further evidence suggests that lack of remediation of QC system deficiencies has a negative influence on audit quality.

Do U.S. Corporations Hire U.S. Educated Skilled Immigrants to Lower their Labor Costs? Evidence from the Audit Industry

Immigrants receiving advanced educational degrees in the U.S. play an increasingly important role in the U.S. economy. Visa regulation concerning their employment by U.S. corporations, however, is a subset of the overall H-1B visa policy that has remained largely unchanged over the last 25 years or so. Policy makers unanimously agree that H-1B visa regulation, particularly concerning US-educated immigrants, needs a comprehensive reform. Hindering reform is the belief that U.S. corporations hire H-1B immigrants, whether educated in the U.S. or abroad, to lower the wages of native workers, not to meet the shortfall of skilled labor. No systematic evidence exists on the wage-depressing argument related to U.S. educated skilled immigrants. We contribute to the debate by examining the wage-depressing argument in the audit industry, which is a significant employer of U.S.-educated skilled immigrants. We find no evidence for this argument in our setting. Our study should interest researchers and policy makers as it supports the case for delinking the regulation reform for immigrants receiving advanced degrees in the U.S. from the overall H-1B visa reform.

Does Engagement Partner Perceived Expertise Matter? Evidence from the U.S. Operations of the Big 4 Audit Firms

This study investigates whether perceived engagement partner industry specialization matters in the U.S. setting, where the name of the engagement partner is currently not disclosed to the capital market participants. Using a unique engagement partner dataset for the U.S. operations of the Big 4 firms, we find that engagements led by industry specialist partners command higher fees and a higher rate per hour. However, the economic significance of these results does not appear to be as large as in settings where the name of the engagement partner is disclosed. Furthermore, we do not find any association between engagement partner industry specialization and several proxies for audit quality, even though we find a positive association with audit hours. These results suggest that, at least in the U.S. setting, there is a dichotomy between the client perceived value and the actual value provided by an industry specialist engagement partner, consistent with audits suffering from credence goods agency issues.