The Importance of Client Size in the Estimation of the Big 4 Effect: A Comment on DeFond, Erkens, and Zhang (2016)

Lawrence, Alastair; Minutti-Meza, Miguel; Zhang, Ping

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The Importance of Client Size in the Estimation of the Big 4 Effect: A Comment on DeFond, Erkens, and Zhang (2016)

Management Science, Forthcoming

Rotman School of Management Working Paper No. 2799442

7 Pages Posted: 23 Jun 2016 Last revised: 19 Sep 2016

See all articles by Alastair Lawrence

Miguel Minutti-Meza

University of Miami - Department of Accounting

Ping Zhang

University of Toronto - Rotman School of Management

Date Written: April 18, 2016

Abstract

DeFond, Erkens, and Zhang (2016, hereafter DEZ) provide comprehensive analyses highlighting how random variations in propensity score matching (PSM) design choices affect inferences concerning the existence of the Big 4 auditor effect. The conclusion of DEZ is that Lawrence, Minutti-Meza, and Zhang (2011, hereafter LMZ) fail to find a Big 4 effect because of PSM’s sensitivity to design choices. We believe that DEZ emphasizes the need to think carefully when implementing PSM. We offer our views on DEZ findings and suggestions for future research.

Keywords: Big 4 Effect; Client Size

Suggested Citation: Suggested Citation

Lawrence, Alastair and Minutti-Meza, Miguel and Zhang, Ping, The Importance of Client Size in the Estimation of the Big 4 Effect: A Comment on DeFond, Erkens, and Zhang (2016) (April 18, 2016). Management Science, Forthcoming , Rotman School of Management Working Paper No. 2799442, Available at SSRN: https://ssrn.com/abstract=2799442