Global Level Auditor Industry Specialization and the Cost of Equity Capital

Using a large sample across 58 countries, we examine (1) the link between global level and joint global, national, and city level auditor industry specialization and audit clients’ cost of equity capital, and (2) how the strength of the national investor protection environment impacts the preceding association. First, our results indicate a negative and significant association between the cost of equity capital and global level and joint global, national, and city level auditor industry specialization. Second, this relation is incrementally more negative when the client’s auditor is a joint global, national, and city level industry specialist than when the auditor is not a global level industry specialist. Third, we find that the negative relation between the cost of equity capital and a joint global, national, and city industry specialist auditor holds only in countries with strong investor protection. Our results are robust to a large battery of additional analyses.