The Impact of Client Expertise, Client Gender and Auditor Gender on Auditors' Judgments

The purpose of the current study is to assess the extent to which auditors’ judgments are affected by client expertise, client gender and auditor gender. Prior audit research suggests that auditors place more weight on evidence received from clients who possess higher, relative to lower, expertise (Anderson et al. 1994b; Bamber 1983; Hirst 1994; Margheim 1986; Rebele et al. 1988). We extend this line of research by suggesting that client expertise interacts with client gender during the auditor-client inquiry process, and examining the degree to which male and female auditors respond differently to these two source attributes. A total of 158 experienced auditors participated in a between-participants experiment with two manipulated variables (client expertise - low or high; client gender - male or female) and one measured variable (auditor gender - male or female). In a client-inquiry scenario, the auditors exhibited greater belief revision when the client possessed relatively higher expertise and when the client was male. A significant three-way interaction suggests that when client expertise was high, relative to low, the male favorability bias was reduced for male auditors; however, surprisingly, the bias was increased for female auditors. Post-experiment debriefing items indicate that male (female) auditors believe that male managers inherently possess a higher (similar) level of managerial ability. Comparing the managerial ability findings to the behavioral responses suggests a potential disconnect between the female auditors’ beliefs and actions. Since one of the hallmarks of the audit profession lies in the concept of objectivity, the results of this study indicate that audit researchers and practitioners need to better understand the implications of negative gender stereotypes toward women managers

When do analysts adjust for biases in management guidance? Effects of guidance track record and analysts' incentives

Prior research indicates that analysts do not fully adjust for the general downward bias in earnings guidance issued by management. We report the results of two experiments designed to investigate how guidance track record and analysts incentives jointly explain the extent to which analysts adjust for guidance bias. Our results suggest that analysts with accuracy incentives adjust for managements track record of downwardly biased guidance when the bias is relatively small (one cent), but those with relationship incentives do not. Furthermore, the difference in adjustment is larger when the bias track record is inconsistent than when it is consistent. Also, when guidance bias is larger (two cents) relative to smaller (one cent), analysts with relationship incentives partially adjust, as they appear to strike a balance between accuracy and their desire to please management. These findings hold implications for investors, regulators, and the interpretation of prior research