Social science research suggests that variation in age within youth peer groups (e.g., kindergarten) provides older children with significant advantages relative to their peers. Over time, this initial advantage can compound and persist into adulthood, enhancing certain characteristics such as confidence. We extend research on the “relative age effect” to auditors and a setting where confidence plays a vital role: recognition of goodwill impairment. Using hand-collected data on the birth dates and locations of U.S. audit partners, we find that relatively older audit partners are able to withstand client pressure and are more likely to require goodwill impairments for clients with higher impairment risk, in relation to relatively younger partners. Moreover, relatively older partners exhibit lower turnover rates following a goodwill impairment event, indicative of their ability to manage potentially difficult client discussions. Our results hold for influential clients, who typically have higher bargaining power in discussions with auditors over subjective financial reporting matters. A follow-up survey also supports that relatively older partners are perceived to be more confident. In additional analyses, we find the relative age effect is muted at larger audit firms and does not necessarily impact audit quality more broadly. Collectively, our results suggest that the relative age effect, which has been observed pervasively in many social settings, is more nuanced in the audit setting. Our results also highlight the importance of individual auditor characteristics in the complicated area of goodwill impairment and associated turnover outcomes.
Cating et al. (Sat,) studied this question.