Effect of auditors serving as independent directors in other listed firms on their audit quality

This paper examines how serving as independent directors at other listed firms affects auditors’ audit quality for their clients. We find that serving as independent directors at other firms can significantly increase auditors’ audit quality. This finding remains robust across a series of endogeneity tests. The mechanism tests show that the effect is more pronounced when auditors serve as independent directors at firms located in the same region as the client or when the firms at which they serve issue financial restatements in the current period. These results suggest that service as an independent director improves audit quality through information and reputation spillover effects. Overall, this study advances our understanding of how auditors’ outside directorships generate spillover effects on auditor behaviour.