“Information Sharing between Mutual Funds and Auditors ” – by Prof. Ole-Kristian Hope
Accounting & Law Seminar
Prof. Ole-Kristian Hope
Deloitte Professor and Professor of Accounting
Rotman School of Management
University of Toronto
This paper examines whether there is information sharing between mutual funds and their auditors about the auditors’ other listed firm clients. Using detailed hand-collected data from the Chinese market, we find that mutual funds invest more in firms with shared auditors. They also earn higher profits from trading in those firms. These effects are more pronounced for firms with a more opaque information environment. The evidence is consistent with information flowing from auditors to mutual funds, providing mutual funds with an information advantage in firms that share the same auditors. We further find that auditors benefit by charging higher audit fees and by improving their audit quality. Our study provides evidence of bi-directional information sharing between two important market intermediaries.