Abstract
This article examines the hedge fund and hedge fund manager characteristics that lead certain hedge fund managers to select quality auditors. Specifically, using a unique measure of audit quality, the author tests whether hedge fund managers with long histories choose lower-quality auditors, given that the effects of initially selecting a quality auditor lessen over time. Consistent with prior research, the author finds a negative relationship between manager tenure and the choice of a quality auditor. Further, under the theory that agency costs increase as hedge fund size increases, the author tests whether hedge funds with higher agency costs choose higher-quality auditors. Again consistent with prior research, the author’s findings indicate that increased agency costs are positively associated with the selection of higher-quality auditors.
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