The impact of audit knowledge spillovers in global audit firms networks on risk disclosure practices by cross-listed firms

In this study the industrial organization theory of knowledge spillovers in multinational corporations is applied to audit knowledge transfers in global audit firm networks. For firms cross-listed on the NYSE, we examine how the characteristics of the global audit firm network affect the early business and industry risk disclosures made in the home market. Using the annual report of 311 firm-year observations over the period 2007-2008, we find that spillovers of audit knowledge from the U.S. to the home market, proxied by the early business and industry risk disclosures, are more likely when the home-country auditor belongs to a global audit firm network where the U.S. auditor has greater industry expertise. Furthermore, we find that the knowledge flows are weaker to audit firms with stronger knowledge bases, which suggests that a home-country auditor industry specialist earns less in terms of knowledge transfers from the global audit firm network. Taken together, we find evidence that the characteristics of the global audit firm network influence the disclosure quality of cross-listed firms in their home market.status: publishe