SSRN Id3647321.PDF Krishnan

Audit Partner Ethnicity and Salient Audit Phenomena
Gopal V. Krishnan
Department of Accountancy
Bentley University
175 Forest Street
Waltham, MA 02452
Phone: (781) 891-2477
Email: gkrishnan@bentley.edu
Zvi Singer * 0F
HEC Montréal
3000, chemin de la Côte-Sainte-Catherine
Montréal, Québec
Canada H3T 2A7
Phone: (514) 340-1847
Email: zvi.singer@hec.ca
Jing Zhang
Department of Accounting
Business School
University of Colorado Denver
1475 Lawrence Street
Denver, CO 80202
Email: jing.2.zhang@ucdenver.edu
December 17, 2022
*
Corresponding author.
We are very grateful for the valuable comments and suggestions from two anonymous reviewers, David Piercey
(editor), Johnathon Cziffra, Suzanne Gangon, Yuntian Li, Gallia Singer, workshop participants at George Mason
University, and two anonymous reviewers for the 2021 Auditing Mid-Year Meeting of the American Accounting
Association. We thank Yanru Yang for excellent research assistance with data collection and editing, and Jiali Luo,
Charlotte Pellegrino, and Negar Taherenjad for help with data collection.
Electronic copy available at: https://ssrn.com/abstract=3647321

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Audit Partner Ethnicity and Salient Audit Phenomena
Abstract
Motivated by ongoing dialog at the national level on racial (in)equality, we examine the relations between
audit partner ethnicity (audit partners of Asian, Black, or Hispanic origin) and three salient audit
phenomena. Specifically, we examine whether there is a difference in financial reporting quality between
the clients of ethnic minority audit partners (EMAPs, hereafter) and those of White partners, whether
EMAPs face a different work environment than their White counterparts, and how EMAPs are treated in
the audit firm. We find that clients of EMAPs, on average, have earnings that are more predictive of
future cash flows, have smaller unsigned discretionary accruals, and are less likely to receive a comment
letter from the U.S. Securities and Exchange Commission than clients of White partners. We also find
weak evidence that clients of EMAPs have more persistent earnings, lower signed discretionary accruals,
and higher audit fees. We do not find evidence of differences in restatement likelihood between the
clients of ethnic partners and those of White partners. Overall, these results provide some evidence that
clients of EMAPs have higher financial reporting quality. Next, we find that, compared to White partners,
EMAPs are more likely to work in offices that are smaller, earn lower audit fees, are non-Big 4, and have
no prestigious clients. Finally, we find that ethnic minority partners are more likely to be in charge of
engagements with clients whose top management (but not whose audit committee) has ethnic
representation. We find no evidence that ethnic minority partners are less likely to be engaged with
prestigious or important clients. However, we find that, following a financial restatement, ethnic minority
partners are more likely than White audit partners to be replaced. Collectively, our findings suggest that
even though EMAPs 1) tend to work in less desirable offices, 2) have a client alignment that is affected
by ethnic representation in the client’s top management, 3) face more severe consequences after audit
failure, they are associated with some properties of higher audit quality. This study is one of the first to
broadly examine important aspects of the work of EMAPs. We believe that our findings will be of interest
to audit firms, audit clients, other related parties, and society at large, especially given audit firms’ efforts
to improve ethnic diversity.
Keywords: ethnicity; audit partner–client association; homophily; audit quality; work environment;
ethnic minority

2
1. Introduction
The underrepresentation of and workplace discrimination against ethnic minorities are
longstanding issues. Within the audit profession, ethnic minorities have been shown to be vastly
underrepresented among audit partners, despite the growing number of minorities hired at the entry level
(Ahn et al., 2021). As the BAME (Black, Asian, and Minority Ethnic) Firm Survey (2018) of the top 10
accounting firms from 2016 shows, the share of ethnic minority audit partners (EMAPs, hereafter) is a
mere 6%, even though non-White persons of color in the United States represent almost 40% of the
population. 1 A similar underrepresentation of EMAPs has been documented in the United Kingdom. 2
1F 2F
While audit firms are making efforts to increase ethnic diversity, we do not know whether and how audit
partner ethnicity (APE, hereafter) relates to audit phenomena, such as whether EMAPs face a different
work environment or provide a different level of audit quality than White audit partners.
Separately, an emerging line of research examines how audit partners’ innate attributes, such as
risk preference, cognitive ability, gender, and social connections, are associated with audit quality and
audit fees (Amir et al., 2014; Burke et al., 2019; Kallunki et al., 2019; Lee et al., 2019; Pittman et al.,
2022). However, there is a paucity of empirical evidence on whether a partner’s ethnicity plays a
significant role in affecting client–partner alignment, audit quality, and audit fees.
Our study focuses on APE and examines its relation to three key audit phenomena. We first
examine whether there is a difference in audit quality between EMAPs and their White counterparts.
Second, we examine the characteristics of the audit offices in which EMAPs work, such as office size and
office prestige. Third, we investigate how EMAPs are treated in the audit firm by examining the
characteristics of the clients with whom they are associated. We believe that all of the above issues are
1
Black people, for example, account for 13% of the U.S. population (US Census Bureau, 2019), but only 4% and 1%
identify themselves as public accountants and audit partners, respectively (American Institute of Certified Public
Accountants, or AICPA, 2019).
2
According to a recent voluntary report from the Big 4 firms in the United Kingdom, only 11 out of almost 3,000
(or 0.4%) equity partners in those firms are Black, compared with their population representation of 3.3 %. See
https://www.telegraph.co.uk/business/2020/06/18/big-four-accounting-firms-have-just-11-black-equity-
partners/#:~:text=Just%2011%20of%20the%20almost,turbocharges%20calls%20for%20racial%20equality.
&text=Deloitte%20has%20just%20one%20black,each%20while%20PwC%20has%20six.

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pertinent, timely, and of interest to the audit profession. For example, Jiles et al. (2021) caution that the
lack of effective diversity, equity, and inclusion practices has led to a measurable talent drain from the
accounting profession, raising concerns about the long-term sustainability of the U.S. accounting
profession’s talent pipeline.
To conduct our study, we collected the names of audit partners from Form AP filed with the
Public Company Accounting Oversight Board (PCAOB) and the names of senior managers and audit
committee members from ExecuComp and BoardEx, respectively. To identify the ethnicity of the above
parties, we used Namsor, a popular machine learning-based software that identifies an individual’s most
probable ethnicity and gender, based on the individual’s first and last names. 3 This software classifies
3F
individuals into the following four ethnic categories according to the U.S. Census taxonomy: Asian,
Black non-Latino, Hispanic Latino, and White non-Latino. 4 We define a person belonging to the first
4F
three categories as an ethnic minority. Our sample comprises 4,497 client–year observations for the fiscal
years 2016 through 2020, of which 202 (4.5%) have an EMAP and 1,124 (25.0%) and 890 (19.8%) have
at least one ethnic minority member in the top executive team and audit committee, respectively. These
low frequencies support anecdotal evidence that ethnic minorities are underrepresented among audit
partners and top executives and in audit committees.
To test the association between APE and audit quality, we use various measures of financial
reporting quality as proxies for audit quality. 5 We find that the clients of EMAPs, on average, have
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earnings that are more predictive of future cash flows and have smaller unsigned discretionary accruals
than the clients of White partners. We also find weak evidence that the clients of EMAPs have more
persistent earnings, lower signed discretionary accruals, and higher audit fees. On the other hand, we do
3
See https://v2.namsor.com/NamsorAPIv2/index.html. In Section 4, we discuss this subscription-based software in
greater detail and present external validity tests for the accuracy of the classifications. Identifying ethnicity based on
name is common in social science research (Agrawal, 2008; Dion & Giordano, 1990; Elliott, 2009; Gompers, 2016;
Hegde & Tumlinson, 2014; Kerr, 2008).
4
We recognize that the terms Black and White represent races, and not ethnicities. However, we use the terms
ethnicity and ethnic minorities to refer to audit partners who are Asian, Black, or Hispanic, to be consistent with the
terminology used by Namsor. An alternative is to use the term racialized groups in reference to non-White groups.
5
We follow DeFond and Zhang’s (2014) suggestion to use multiple measures to study audit quality. We do not
examine going-concern opinions, because doing so would limit our already small sample to distressed companies, a
subsample that would be too small for an empirical analysis with reasonable test power.

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not find evidence of differences in restatement likelihood between the two groups of partners. These
results provide some evidence that the clients of EMAPs have higher financial reporting quality. The
positive association between EMAPs and audit fees could suggest that EMAPs extend greater efforts to
achieve higher audit quality. Our results are robust to the use of entropy balancing weighting and a three-
step two-stage least squares (2SLS) design with an instrumental variable (IV). However, we acknowledge
that these tests do not fully rule out self-selection as the reason EMAPs are associated with higher audit
quality. This is because, as in other empirical studies, our tests use observed company characteristics.
With regard to the characteristics of audit offices in which EMAPs work, we find that, compared
with White audit partners, EMAPs are less likely to work in Big 4 audit offices and in offices with
prestigious clients. 6 Furthermore, EMAPs work in offices that are smaller and earn lower audit fees.
6F
There are several possible explanations for these results, two of which are consistent with fewer
opportunities for ethnic auditors. First is that minorities face greater barriers when trying to advance to
higher and more desired positions in the hierarchy (the glass ceiling theory (Hymowitz & Schellhardt,
1986)). The second explanation is that ethnic auditors are less likely to be offered entry positions in the
larger and more desired audit offices, and this underrepresentation carries over to the higher ranks. The
third explanation is that EMAPs self-select to work in smaller and less prestigious audit offices. We
conduct a test to mitigate the concern of self-selection being the main reason for these results.
Next, we examine several dimensions of EMAPs’ engagement with clients. We find that EMAPs
are more likely to be associated with clients whose senior leadership includes ethnic minorities. This
result is consistent with the homophily principle (Lazarsfeld & Merton, 1954; McPherson & Smith-Lovin,
1987; McPherson et al., 2001) and suggests that partner ethnicity matters in the client–audit partner
alignment process. We find no evidence that ethnic representation on the audit committee matters for the
client–audit partner association. The effect of top management ethnicity, but not of audit committee
ethnicity, is consistent with the findings of Cohen et al. (2010), Fiolleau et al. (2013), and Dhaliwal et al.
6
These results are consistent with those of Downar et al. (2021b), who find that, in Germany, female and foreign
auditors are less likely to become partners in Big 4 audit firms.

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(2015) that, even after the passage of the 2002 Sarbanes–Oxley Act (SOX), management remains the key
driver of auditor selection. Second, we find no evidence that EMAPs are less likely to serve prestigious or
important clients; however, we find that EMAPs are more likely than their White counterparts to be
replaced following a financial restatement. This result suggests that White audit partners are more likely
to be absolved of audit failures than EMAPs and is consistent with the savior effect (Cook & Glass, 2014).
Thus, although EMAPs do not face differential treatment when it comes to serving prestigious or
important clients, they are judged more harshly when there is an audit failure, such as a financial
restatement.
We conduct several additional analyses. First, we refine the audit partner–client association test
by examining within-ethnicity audit partner–client alignment. In further support of the homophily
principle, we find that the audit partners of Asian (but not Latino) ethnicity are more likely to be
associated with clients having Asian representation in senior management. Similarly, the audit partners of
Latino (but not Asian) ethnicity are more likely to be associated with clients having Latino representation
in senior management. Second, we use the likelihood of receiving a U.S. Securities and Exchange
Commission (SEC) comment letter as an alternate measure of audit quality. We find that the clients of
EMAPs have a lower probability of receiving an accounting-related comment letter from the SEC, and the
letters they receive mention fewer accounting-related issues. Our third test aims to mitigate the concern
that self-selection is the only reason EMAPs are less likely to work in desired audit offices. We conjecture
that, if ethnic minorities face some discrimination in the promotion process, it should be less pronounced
among more experienced and established auditors. Indeed, we find some evidence that partner age
mitigates the negative association between EMAPs and the likelihood of working in desired audit offices.
Although this test cannot completely rule out the self-selection explanation, this result suggests that our
findings are unlikely to be driven by self-selection alone.
Taken together, our results suggest that, to some degree, EMAPs are associated with higher audit
quality, yet they work in less desired audit offices, their alignment with clients is affected by ethnic
representation within the client’s top management, and they are more likely to be replaced following audit

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failure. These findings potentially suggest that ethnic minorities do face different treatment in the audit
profession, and the different treatment could incentivize EMAPs to work harder and deliver higher audit
quality.
Our study makes several contributions to the literature. First, to the best of our knowledge, ours is
one of the first studies to provide empirical evidence on the implications of APE for multiple salient audit
phenomena. Academic studies and practitioner surveys often show evidence of severe minority
underrepresentation in the higher ranks of the field (AICPA, 2019; Dey, 2019; Drumgo, 2019). Our
research goes much deeper by considering their professional conduct, work environment, and interactions
with clients. Our findings have important implications for both audit firms and client companies. Second,
we contribute to the nascent literature on the link between audit partners’ innate attributes and audit
quality by providing empirical evidence on a yet unexplored dimension: APE. Our findings, for the most
part, support the notion that EMAPs are associated with higher audit quality. Third, we contribute to the
broader literature on the effects of social proximity and social networks on economic transactions (Fisman
et al., 2017; Hegde & Tumlinson, 2014; Kalnins & Chung, 2006), as well as to the concurrent literature
on the determinants of audit partner–client alignment. While Lee et al. (2019) find that audit partner
gender plays a role in partner–client alignment, we provide evidence that ethnic proximity (homophily)
between the audit partner and the client’s senior management is also related to audit partner–client
alignment.
The next section summarizes the related research. Section 3 describes the theory and develops our
hypotheses. Section 4 describes the research design and empirical models. Section 5 presents our sample,
followed by the main results, with supplementary analysis in Section 6. Section 7 discusses the results,
concluding remarks, and avenues for future research.
2. Prior research
Regulators and professional accounting bodies all over the world have identified engagement
audit partner involvement as one of the key indicators of audit quality (Bik & Hooghiemstra, 2017).
Academic studies also find audit partners to have a strong effect on audit quality. Using a sample of

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Chinese auditors, Gul et al. (2013) show that individual auditor fixed effects explain a large portion of the
variation in audit quality. Using an Australian sample, Taylor (2011) shows that individual audit partner
effects also explain a large portion of the variation in audit fee premiums (or discounts) that goes beyond
the audit firm effect. Knechel et al. (2015) show that auditor reporting style (aggressive or conservative)
persists over time and extends to other clients of the same audit partner. Li et al. (2017) find a contagion
effect of low-quality auditing over time and across audit clients. Wang et al. (2015) show that an
individual partner’s past audit failures increase the likelihood of an eventual restatement of subsequent
year audits.
The evidence of a strong audit partner effect has led to studies examining audit partners’
individual traits and their effects on audit outcomes. While some studies examine the circumstances
surrounding individual audit partners, such as busyness (Burke et al., 2019), others examine innate
auditor characteristics and their effects on audit outcomes. Many studies examine the effect of audit
partner gender on audit quality. While the majority of these studies (Cameran et al., 2022; Hao et al.,
2022; Hardies et al., 2016; Ittonen & Peni, 2012; Ittonen et al., 2013; Lee et al., 2019) find that female
audit partners are associated with higher audit quality, Burke et al. (2019) and Cahan and Sun (2015) do
not find such an association. Gul et al. (2013) find that, in China, auditor educational background and
Big N audit firm experience are positively associated with audit quality. Using data from Norway, Che et
al. (2018) also find audit partner education to have a positive effect, though the effect is nonlinear.
Pittman et al. (2022) find that audit partners with a higher tolerance for risk (based on their history of
legal infractions) provide lower-quality audits.
Prior studies are generally silent on the relation between APE and audit quality or on issues such
as ethnicity, and the work environment or client alignment. In non-audit contexts, there is evidence that
ethnic minorities are more likely to be promoted to chief executive officer (CEO) when firm performance
is poor (Cook & Glass, 2014); ethnically diverse management teams compete more intensively and
perform better (Andrevski et al., 2014); and ethnic minority entrepreneurs are more likely to be denied
credit or to be awarded smaller loans than requested (Bruder et al., 2011). However, evidence regarding

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EMAPs remains scarce. 7 Thus, more evidence on how ethnicity affects audit outcomes is warranted and
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has important implications for audit professionals, audit clients, other related parties, and society at large.
3. Theory and hypotheses
Audit quality is an essential aspect of the auditor’s work and has been the focus of most audit
research in the last two decades (DeFond & Zhang, 2014). Thus, our first hypothesis relates to the relation
between APE and audit quality. The glass ceiling theory argues that it is more difficult for minorities to
obtain jobs that pay well or are associated with a higher reputation (Hymowitz & Schellhardt, 1986). With
regard to the promotion of ethnic minorities, Zweigenhaft and Domhoff (2006) find that minority
corporate leaders have stronger academic and professional backgrounds than their White male peers. Bell
and Nkomo (2001) find that minority executives are more likely to have an MBA. These findings suggest
that minorities must be more accomplished to reach senior positions. In addition, once on the job,
minorities must work harder to prove themselves. According to Kanter’s (1977) well-known theory of
tokenism, because minority individuals are fewer, they have higher visibility, which subjects them to
greater performance pressure. 8 To the extent that EMAPs must work harder and be more accomplished to
8F
advance to partnership, we expect them to provide higher-quality audits than White audit partners.
On the other hand, audit partners with ethnic minority backgrounds may be associated with lower
audit quality for two reasons. First, an ethnic minority auditor could be promoted to partnership for
ceremonial purposes. Meyer and Rowan (1977) introduced institutional theory and argue that many
modern organizational structures arise from the development of institutional rules that are set for firms to
gain legitimacy. 9 If audit firms promote gender and race equality policies solely for the sake of gaining
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symbolic legitimacy, they might choose to promote ethnic minorities to partner positions, even if these
7
To the best of our knowledge, the academic studies of Berglund and Eshleman (2019) and Davis et al. (2021) are
the only ones that examine ethnic minorities in auditing. Berglund and Eshleman (2019) focus on the ethnic
similarity between the client managers of nonprofit organizations and audit partners and find that co-ethnicity is
associated with lower audit quality. Davis et al. (2021) interviewed 15 current and former Black public accountants,
including two audit partners, to understand the experiences of Black accountants.
8
A so-called token employee is someone belonging to a “socially skewed group” of employees who constitute less
than 15% of the workforce.
9
Beasley et al. (2009) use the frameworks of institutional theory and agency theory (Fama & Jensen, 1983; Jensen
& Meckling, 1976) to analyze the oversight process of the audit committee. Spira (1999, 2002) uses institutional
theory to examine the ceremonial aspect of the audit committee.

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auditors lack the qualifications to justify their promotions. In such a case, these auditors would be
incapable of providing a level of audit quality similar to that of White audit partners. Second, McDonald
et al. (2018) examine the behavioral responses of White male managers to the appointment of a female or
ethnic minority CEO. They find that subordinate White male senior executives tend to develop a
diminished sense of organizational identity in such situations, and they consequently provide less help to
these CEOs. Cook and Glass (2015) further develop this idea, arguing that, because ethnic minorities are
assumed to be less competent, intelligent, or successful (Bobo & Kluegel, 1993; Ragins, 1997), their
peers and even subordinates will subject them to hostility, resistance, and dislike (Heilman et al., 2004;
Nesbitt, 1997). Ely et al. (2012) show that, when minorities perceive a lack of workplace support, their
performance deteriorates. Thus, if this type of behavior extends to the accounting profession, EMAPs are
likely to receive less cooperation within the audit firm, reducing their ability to provide high-quality
auditing.
Finally, there may not be a difference in audit quality between ethnic minority and White audit
partners because auditors must adhere to auditing standards. This, in turn, might leave little room for the
effect of a partner’s ethnic background to manifest itself in the partner’s auditing style. In addition, audit
firms employ quality control systems and training that standardize the audit process and ensure effective
audits across clients. This could, in turn, minimize the effect of the auditor’s ethnicity on the audit.
Due to these opposing theories and their different predictions, we present our first hypothesis on
the relation between APE and audit quality in the null form, as follows.
H1: APE is not related to audit quality.
Our second hypothesis relates to issues concerning the work environment faced by EMAPs.
Specifically, we investigate whether the audit offices where EMAPs work are different from those where
White partners work. If the glass ceiling phenomenon, discussed above, is present in the highest ranks of
the audit profession, then it could be more difficult for ethnic minorities than for White employees to
advance to partnership at desirable audit offices. It is also possible that ethnic minorities are less likely to
be hired at the entry level at Big 4 audit firms, which would lead to their underrepresentation at the

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partner level later on. In addition, if ethnic minorities are more tied to their communities (Sharkey, 2015)
and if promotion to partnership in desired offices may require relocating to a different city or state, it
would be less attractive for ethnic senior managers to advance to partnership in those offices. In other
words, ethnic minority accountants might self-select not to work in the more desired offices. For any of
these reasons, we expect an underrepresentation of ethnic minorities among partners.
However, there are also reasons to expect that EMAPs will not face an adverse work environment,
due to legal protections against discrimination, along with the adoption of best practices to address work-
related discrimination (e.g., sensitivity training and an emphasis on workplace diversity and equality),
especially in Big 4 accounting firms. In addition, the small percentage of ethnic minorities who worked
their way up to partnership may have established their abilities to earn equal treatment. Given that it is ex
ante unclear whether or not EMAPs face a different work environment, we state our second hypothesis in
the null form, as follows.
H2: The work environment does not differ between EMAPs and White audit partners.
Our last set of hypotheses examines how EMAPs are treated in audit firms, by looking at some
important characteristics of their clients. We predict that EMAPs are more likely to engage with clients
whose senior management team or audit committee has ethnic representation. Although SOX (Section
301) empowers the audit committee of the board of directors with the responsibilities to appoint,
compensate, renew, and oversee the work of the external auditor (U.S. House of Representatives, 2002),
prior research suggests that management continues to play an active role in the audit partner selection
process (e.g., Chen et al., 2016; Cohen et al., 2010; Dhaliwal et al., 2015; McCracken et al., 2008).
Moreover, while variability across companies exists, audit committees often allow management—for
example, the CEO, the chief financial officer (CFO), and the controller—to provide substantial input into
engagement partner selection (Cohen et al., 2010; Dodgson et al., 2020). For example, 90%, 85%, 70%,
and 65% of the audit partners interviewed by Dodgson et al. (2020) indicated that the audit committee,
CEO, CFO, and the controller, respectively, were involved in the auditor selection decision. Some
interviewees noted that management might give a recommendation, leaving the audit committee

11
ultimately responsible for the final decision, while others indicated that management could be the driver
of the decision, with the audit committee then simply ratifying the choice. 10 We therefore consider the
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profiles of both the audit committee and senior management in our hypothesis development regarding
client–audit partner association.
Prior research finds that the process of nominating an audit partner to an engagement is not
random (Amir et al., 2014; Lee et al., 2019); rather, it is managed by both parties. Dodgson et al. (2020)
describe the audit partner rotation process as a series of reciprocal exchanges and find that the choice of
the upcoming engagement partner involves looking for a good fit. About 80% of audit partners
interviewed indicated that the personal characteristics of the audit partner play an important role in the
decision process. Moreover, Dodgson et al. (2020) find that audit firms assess clients’ preferences with
regard to their next engagement partner. 11 11F
Three theories from the social sciences guide us in developing our prediction on client–partner
association. The first is the homophily principle, or the idea that similarity breeds connection. The term,
originally formulated by Lazarsfeld and Merton (1954) but traces back to ancient Greece (Aristotle and
Plato), refers to the tendency of individuals to associate and bond with similar people, that is, social
proximity. Homophily is a pervasive phenomenon, and its presence has been documented in a vast array
of network studies, with race and ethnicity being the biggest determinants in social networks in the United
States (McPherson et al., 2001). 12 Given the pervasiveness of homophily along the dimension of ethnicity,
12F
10
The view that management continues to have significant input into the audit selection process in some companies
is consistent with prior literature (e.g., Cohen et al., 2010; Fiolleau et al., 2013). Fiolleau et al. (2013) conducted a
field study involving a request for the proposal process of a large (>$10 billion in assets), profitable public company
that complied with all recent regulatory requirements and appears to have a high-quality audit committee (e.g.,
independent, meets frequently, has financial expertise). Even in such an environment that favors active audit
committee participation, the authors find that the audit committee plays a limited and passive role, mainly serving to
approve the management’s auditor recommendation.
11
Consistent with this notion, the Institute of Management Accountants (IMA, 2021, 32) reports that a White male
senior managing audit partner and board member made the following comment regarding client assignment: “I
remember when it was impossible to put a female or Black person on some accounts. Some clients wouldn’t allow it.
Most CPA firms were afraid to try.”
12
Greenberg and Mollick (2017) note that homophily is one of the most frequently studied mechanisms in the social
sciences. Strong evidence of homophily along racial and ethnic lines is found in several dimensions of relationships,
such as the bonds of marriage (Kalmijn, 1998), confiding (Marsden, 1987, 1988), schoolmate friendship ties (Shrum
et al., 1988), work relations (Ibarra, 1995; Lincoln & Miller, 1979), and audit teams (Downar et al., 2021a).

12
we expect a client to be more likely to prefer an EMAP leading the engagement when the client has ethnic
minority representation in senior management or on the audit committee than when the client does not.
Similarly, an EMAP may prefer to work for clients with ethnic minority representation. Argued from the
opposite angle, White people have been found to have much more racially homogeneous networks than
any other racial or ethnic group (McPherson & Smith-Lovin, 1987). Thus, a predominantly White client
is likely to prefer a predominantly White network and, accordingly, will show preference for a White
audit partner in charge of the engagement.
Second, social capital plays an important role in forming new alliances. Kalnins and Chung
(2006, 234) state that members of an immigrant group are motivated to help one another “due to a
principled sense of shared values and shared destiny, or due to enforceable trust caused by an
instrumental fear of reputation loss.” Further, Hegde and Tumlinson (2014, 2361) posit that “the shared
ethnic community may curtail opportunistic behavior and reduce monitoring costs.” This notion suggests
that shared ethnicity enhances trust and lowers the cost of monitoring in a business relationship, both of
which are especially important in auditing. Thus, we predict a preference by companies with ethnic
representation and EMAPs to work together.
The third theory we rely on is isomorphism. The term isomorphism, borrowed from mathematics,
was developed by DiMaggio and Powell (1983) in describing the process of organizations’
homogenization. They theorize that isomorphism occurs in most organizations, especially in well-
established industries. Coercive isomorphism occurs when the focal organization feels compelled to adopt
structures or processes through either the formal or informal expectations of another organization upon
which the focal organization depends (DiMaggio & Powell, 1983), such as in customer–supplier
relationships. Audit firms can feel formal or informal pressure to follow a client’s practices. If the client
has a very senior position held by an ethnic minority (such as the CEO) or has an audit committee with
ethnic representation, the audit firm might feel compelled to follow the client by assigning an EMAP to
the engagement to achieve greater legitimacy with the client.

13
Overall, since audit partner–client alignment is non-random (e.g., Dodgson et al., 2020; Lee et al.,
2019) and given the roles that client management and the audit committee play in influencing engagement
audit partner choice (Chen et al., 2016; McCracken et al., 2008), we formulate the following hypothesis.
H3a: Ethnic representation in the client’s top management or audit committee is

positively associated with the likelihood of having an EMAP.
Next, we examine whether partner ethnicity plays a role in the likelihood of serving important or
prestigious clients. If EMAPs encounter discrimination within the audit firm, they would be denied the
opportunity to network with prestigious and importance clients. This is because client assignments are
critically important in determining the level of partner compensation, which is largely decided by the size
and prestige of the clients (Hardies et al., 2020; Knechel et al., 2013). In the context of gender, Hardies et
al. (2020) find that female audit partners in Belgium are less likely to be assigned to prestigious clients,
and this pattern might extend to ethnicity. However, if accounting firms have successfully implemented
various mechanisms to prevent discrimination, we would not observe an association between partner
ethnicity and client assignment. Moreover, if EMAPs provide higher audit quality due to greater pressure
to prove themselves, they might be more likely to serve prestigious or important clients, because audit
firms would assign the most talented partners to these clients. Given the above arguments, we state the
following hypothesis in the null form.
H3b: APE is not related to client importance or prestige.
4. Research design
In this section, we describe our measures of ethnicity and audit quality and the empirical models
we use to test our hypotheses.
4.1 Determining the ethnicity of key players
To infer the ethnicity of the individual audit partners, senior executives, and audit committee
members, we rely on Namsor, a popular machine learning-based software that classifies personal names
by gender and ethnicity. Namsor uses naive Bayes algorithms, a class of algorithms that is excellent at
classification to determine an individual’s most likely ethnicity. This software has been used in academic

14
research, as well as in studies published by the European Commission (2016, 2018) and the United
Nations (2020). In Appendix A, we provide a list of studies that used Namsor to determine gender or
ethnicity. Namsor classifies ethnicity into four categories according to the U.S. Census’ taxonomy: Asian,
Black non-Latino, Hispanic Latino, and White non-Latino. Taking into consideration both the first and
last names, Namsor provides the two most likely ethnicities (i.e., first likely ethnicity and second likely
ethnicity) and two probabilities: 1) the probability of the most likely ethnicity and 2) the cumulative
probability of the person belonging to either the first or second most likely ethnicity. We consider a
person’s ethnicity to be identifiable only if Namsor can provide ethnicity information with a probability
of accuracy above 50%. 13 We deem an audit partner an ethnic minority if neither the partner’s first likely
13F
or second likely ethnicity is White, and we code that individual as an EMAP. 14 Audit partners who
14F
belong to the White category are in the comparison group. We followed the above steps to determine the
ethnicities of senior managers and audit committee members.
4.2 Validation of Namsor’s ethnicity classification
To validate the reliability of Namsor’s ethnicity classification, we randomly chose 150 names that
were classified by the software as ethnic minorities (100 CEOs and 50 audit partners) and 450 names that
were classified as White (300 CEOs and 150 audit partners) to infer the Type I and Type II error rates. A
research assistant (RA) who was unaware of Namsor’s ethnicity classification was tasked to manually
search the pictures and biographies of each named individual through LinkedIn, company websites, and
other sources to determine whether the individual was an ethnic minority or White. 15 For eight out of the
15F
150 people classified by Namsor as ethnic minorities, the RA was unable to determine the ethnicity due to
lack of information. For the remaining 142 people, the RA identified 135 as ethnic minorities and
13
For robustness, we also used accuracy probabilities above 60% or 70%. Our results remain unchanged
(untabulated).
14
As an example, for a specific name, Namsor indicated that the person was a Latino with a probability of 87.3%
and that the person was either Latino or Asian with a probability of 93.9%. These probabilities are relative to the
unconditional probabilities of 25% and 50%, respectively. In this case, we classified the person as an ethnic minority
because 1) the most likely probability is above 50% and 2) the probability of the person being White was neither the
most likely nor second most likely.
15
The RA first examined pictures of the individual to identify the individual’s ethnicity. If this was not enough, the
RA then read the person’s profile to determine the ethnicity.

15
determined that seven were unlikely to be ethnic minorities. Thus, in the sample of ethnic minorities, the
likelihood of misclassifying a White person as an ethnic minority (i.e., a Type I error) is 4.93% (7/142).
For 14 out of the 450 people who were classified by Namsor as White, the RA was unable to determine
the ethnicity due to lack of information. Of the remaining 436 people, the RA classified 429 as White and
determined that seven were unlikely to be White. Thus, the likelihood of misclassifying an ethnic
minority as a White person (i.e., a Type II error) is 1.61% (7/436). Since the Type I and Type II errors are
both below 5%, we conclude that the risk of misclassification in our study is low. 16 For our sample of
16F
2,740 unique audit partner names, Namsor classified 6.2% of them as ethnic minorities, compared to 6%
in the BAME survey. This consistency further increases our confidence in Namsor’s ability to correctly
identify APE.
4.3 APE and audit quality
A universal measure of audit quality does not currently exist (DeFond & Zhang, 2014). Thus, to
examine the association of APE with audit quality (H1), we employ four measures of financial reporting
quality: earnings persistence, the earnings predictability of future cash flows, discretionary accruals
(signed and unsigned), and accounting restatements. These measures reflect the notion that financial
statements are joint products of managers and auditors. We use earnings persistence because sustainable
and persistent earnings are consistent with high-quality reporting (Dichev et al., 2013). Similarly, the
ability of earnings to predict future cash flows is consistent with the objectives of financial reporting
(Financial Accounting Standards Board, 1978). We use discretionary accruals as a measure of the
auditor’s ability to constrain accrual-based earnings management (Lee et al., 2019), and the incidence of
accounting restatements as evidence of poor audit quality. In addition, we examine the association of APE
with audit fees. Various studies (e.g., Craswell et al., 1995; DeFond et al., 2000; Francis, 1984) use audit
fees as a measure of audit quality and find Big N and industry specialization fee premiums as evidence
that higher audit quality leads to higher audit fees. Thus, audit fees could reflect the level of effort and
16
While Namsor’s misclassification rates are very low, we note that, within the different ethnicities, the
misclassification rates are higher for Black people. Thus, for robustness, we exclude all partners, managers, and
audit committee members classified as Black, and our results continue to hold (untabulated).

16
expertise of the audit partner (DeFond & Zhang, 2014) and could provide the path through which EMAPs
provide a different audit quality from that of White partners. 1717F
To test the relations between APE and earnings persistence, and the earnings predictability of
future cash flows, we estimate the following models (where time and client subscripts are omitted for the
sake of brevity):
ROALEAD = ß0 + ß1ROA + ß2ROA×ETHNAP + ß3ETHNAP + ß4-20CONTROLS +

ß21-37ROA×CONTROLS + INDUSTRY FE + YEAR FE + ɛt (1)
OCFLEAD = ß0 + ß1ROA + ß2ROA×ETHNAP + ß3ETHNAP + ß4-20CONTROLS +

ß21-37ROA×CONTROLS + INDUSTRY FE + YEAR FE + ɛt (2)
where ETHNAP is an indicator variable that equals one if the audit partner is an ethnic minority, and zero
otherwise; ROA and ROALEAD are earnings before extraordinary items divided by total assets, in years t
and t + 1, respectively; and OCFLEAD is the operating cash flow divided by total assets in year t + 1. The
coefficient of interest in models (1) and (2) is ß2. A positive (negative) coefficient estimate would be
consistent with an EMAP being associated with higher (lower) audit quality. As discussed in Section 3,
we also recognize the possibility that the coefficient might not be statistically significant, due to quality
control mechanisms and the standardized audit processes used by audit firms. This, in turn, will minimize
the effect of the individual audit partner on audit quality.
Hardies et al. (2016) and Lee et al. (2019) find that female audit partners are associated with
higher audit quality. We therefore control for audit partner gender (FEMALEAP) in the model. We also
include the proportion of ethnic minorities on the executive team (ETHNTEAM), the presence of a female
CEO (FEMALECEO), and the presence of a female CFO (FEMALECFO), given that financial reporting
quality is likely to be influenced by senior executives’ ethnicity and gender. In addition, consistent with
prior studies (Atwood et al., 2010; Folsom et al., 2017), we control for several client innate characteristics
found to be associated with earnings quality, such as client size (SIZE), age (AGE), importance
17
However, we acknowledge that an audit fee premium can also represent compensation for higher audit risk
(DeFond & Zhang 2014). We therefore include in the model various variables that can control for client risk, such as
the book-to-market ratio, client leverage, client size, existence of a loss, and the standard deviation of operating
income.

17
(IMPORTANT), leverage (LEV), the standard deviation of operating income (OPINSD), the book-to-
market ratio (BM), the number of business and geographic segments (BSEGMENT and GSEGMENT,
respectively), and level of foreign operations (FOREIGN). Skinner and Sloan (2002) document a positive
association between dividend distribution and earnings persistence. Thus, we include an indicator variable
(DIV) for the dividend distribution. Last, we control for audit firm size (BIG4OFC), audit office size
(OFCSIZE), and audit office gender diversity (OFCDIVERSE), since larger auditors and more diverse
audit offices are likely to provide better audit quality (e.g., Condie et al., 2022; DeAngelo, 1981; Huang,
2022). Lastly, in all models, we include year and industry fixed effects and cluster standard errors at the
client level. 18 Appendix B provides the detailed definitions of all the variables.
18F
Next, to test the association between APE and (signed and unsigned) discretionary accruals, the
likelihood of having an accounting misstatement, and audit fees, we estimate the following model:
ABSDISACCR/DISACCR/RESTATEMENT/LAFEE = ß0 + ß1ETHNAP + ß2ETHNTEAM +

ß3IMPORTANT + ß4FEMALEAP + ß5FEMALECEO + ß6FEMALECFO + ß7SIZE +
ß8LEV + ß9BM + ß10AGE + ß11OPINSD + ß12LOSS + ß13OCF +
ß14ACCRLAG/ABSACCRLAG + ß15BSEGMENT + ß16GSEGMENT + ß17FOREIGN +
ß18DIV + ß19BIG4OFC + ß20OFCSIZE + ß21OFCDIVERSE + INDUSTRY FE + YEAR FE
+ ɛt (3)
The dependent variables, DISACCR, ABSDISACCR, RESTATEMENT, and LAFEE, are the signed and
unsigned discretionary accruals estimated using the modified Jones model (Dechow et al., 1996; Jones,
1991), an indicator variable for the occurrence of an accounting misstatement, and the natural logarithm
of audit fees, respectively. Our variable of interest is ETHNAP. All the control variables are the same as
in models (1) and (2), except that we also add LOSS and OCF. In addition, when the dependent variable is
DISACCR, we add to the model the prior year’s total accruals (ACCRLAG); when it is ABSDISACCR, we
include the prior year’s absolute total accruals (ABSACCRLAG).
18
In all models, the continuous variables are winsorized at the first and 99th percentiles.

18
4.4. APE and the work environment
To test our second hypothesis of whether EMAPs work in a different environment from that of
White partners, we examine the characteristics of the offices in which they work. We estimate the
following models using partner-level data:
BIG4OFC = ß0 + ß1ETHNAP + ß2FEMALEAP+ ß3PARTNERAGE + ß4LFOLLOW + ß5TRAVEL

+ ß6FORGNSCHL +UNIVERSITY FE + YEAR FE + STATE FE + ɛt (4)
PRESTIGEOFC = ß0 + ß1ETHNAP + ß2FEMALEAP + ß3PARTNERAGE + ß4LFOLLOW + ß5TRAVEL

+ ß6BIG4OFC + ß7FORGNSCHL + UNIVERSITY FE +YEAR FE + STATE FE + ɛt (5)
OFCSIZE = ß0 + ß1ETHNAP + ß2FEMALEAP + ß3PARTNERAGE + ß4LFOLLOW + ß5TRAVEL

+ ß6BIG4OFC+ ß7FORGNSCHL + UNIVERSITY FE +YEAR FE + STATE FE + ɛt (6)
LAVEFEE = ß0 + ß1ETHNAP + ß2FEMALEAP + ß3PARTNERAGE + ß4LFOLLOW + ß5TRAVEL

+ ß6BIG4OFC+ ß7FORGNSCHL + UNIVERSITY FE +YEAR FE + STATE FE + ɛt (7)
We use four different aspects of audit offices: 1) whether the audit office is that of a Big 4 firm
(BIG4OFC); 2) whether the audit office has at least one prestigious client, where prestigious clients are
19
those appearing on Fortune’s World’s Most Admired Companies list during 2016–2020 19F
(PRESTIGEOFC); 3) the audit office size, proxied by the natural logarithm of the total assets of the audit
office’s clients (OFCSIZE); and 4) the natural logarithm of the average audit fees generated per audit
office partner (LAVEFEE). We surmise that, generally, more desirable offices would be bigger, have
better reputation (i.e., Big 4), and serve more prestigious and high-paying clients.
To ensure that these dimensions do not merely capture a Big 4 effect, in models (5) to (7), we
control for BIG4OFC. Our variable of interest in models (4) through (7) is ETHNAP. An insignificant ß1
coefficient would indicate that EMAPs and White audit partners do not work in offices with different
characteristics. On the other hand, a positive (negative) coefficient would suggest that audit partners
19
This list includes around 335 (a number that varies slightly by year) highly prestigious companies. This survey of
corporate reputation begins with a universe of about 1,500 candidate companies: the 1,000 largest U.S. companies
by revenue, along with non-U.S. companies in Fortune’s Global 500 database. To determine the best-regarded
companies, executives, directors, and analysts rate these enterprises on nine dimensions, including investment value,
the quality of management and products, social responsibility, and the ability to attract talent. Some highly reputable
companies, such as Apple, Amazon, and Microsoft, appear on the list every year. Other companies may be on the
list only for some years. For example, Xerox was on the list for 2017 and 2018, but not for 2019. For a detailed
description of the procedure to develop this list, see https://fortune.com/franchise-list-page/methodology-worlds-
most-admired-companies-2022.

19
having ethnic minority backgrounds are more (less) likely to work in desirable audit offices. In all four
models, we control for audit partner willingness to travel by using the indicator variable TRAVEL, the
number of different states in which the partner worked during 2016–2020. We control for the partner’s
willingness to travel, given that a path to partnership in more desirable audit offices can involve
significant travel or relocation, and ethnic minorities might be less inclined to do so due to stronger ties to
their communities. Since the decision of where to work can be largely influenced by the location where
the partner was educated, we include fixed effects for the state where the partner attended university
(UNIVERSITY FE) and if the partner studied abroad (FORGNSCHL FE). We also control for the partner’s
gender (FEMALEAP), age (PARTNERAGE), and social network (FOLLOW). 20 Last, we include in the
20F
model fixed effects for the year and state where the audit firm is located. We cluster standard errors at the
audit partner level.
4.5 APE and partner–client association
Next, to test whether clients with more ethnically diverse executive teams or audit committees are
more likely to have an ethnic minority partner in charge of the engagement (H3a) and whether ethnic
minority partners are more or less likely to be engaged with important or prestigious clients (H3b), we
estimate the following logit model:
ETHNAP = ß0 + ß1ETHNEXE/ETHNTEAM/ETHNCEO, ETHNCFO + ß2ETHNAC+ ß3IMPORTANT +

ß4 PRESTIGE+ ß5FEMALECEO + ß6FEMALECFO + ß7SIZE + ß8LEV + ß9LOSS +
ß10OCF + ß11BM +ß12OPINSD + ß13BSEGMENT + ß14GSEGMENT + ß15FOREIGN +
ß16BIG4OFC + ß17OFCSIZE + ß18CALIFORNIA+ ß19ETHNSTATE + INDUSTRY FE +
YEAR FE + ɛt (8)
We account for ethnic diversity in the executive team in three ways. First, we use the indicator variable
ETHNEXE, which equals one if the client company has at least one ethnic minority top executive, and
zero otherwise. Second, we use the continuous variable ETHNTEAM to denote the proportion of ethnic
minority managers on the executive team. 21 Third, because CEOs and CFOs are responsible for the
21F
content of financial statements (Section 302 of SOX), we use the indicator variables ETHNCEO and
20
Information about partners’ age, network, and university attended were manually collected from each partner’s
LinkedIn page.
21
We consider executives to be on the top executive team if their information is disclosed in the proxy statement.

20
ETHNCFO to control for the ethnicity of the CEO and CFO, respectively. To account for ethnic diversity
in the audit committee, we use the indicator variable ETHNAC, which equals one if at least one audit
committee member is an ethnic minority, and zero otherwise. The indicator variable IMPORTANT equals
one if the client’s total assets account for more than 10% of the total assets of the audit office’s clients,
and zero otherwise (Hardies et al., 2016). We define a client as prestigious (PRESTIGE = 1) if the client
appears on Fortune’s World’s Most Admired Companies list during the period from 2016 to 2020.
We control for a vector of client-level characteristics that could be associated with the likelihood
of having an EMAP. We control for CEO and CFO gender (FEMALECEO and FEMALECFO,
respectively) because research finds that female managers tend to exhibit more ethical behavior (e.g.,
Neidermeyer et al., 2003). Thus, female managers are less likely to hold biased views toward EMAPs.
Hillman et al. (2007) argue that large companies engaged in multiple industries benefit more from
diversity. Therefore, we include the client’s size (SIZE), number of business segments (BSEGMENT),
number of geographic segments (GSEGMENT), and level of foreign operations (FOREIGN). To control
for client performance, we use the incidence of negative earnings (LOSS), the operating cash flow (OCF),
and the book-to-market ratio (BM). To control for client risk, we use the leverage ratio (LEV) and the
standard deviation of operating income (OPINSD). We make no predications on the associations between
client performance or client risk and the likelihood of having an ethnic minority partner. We control for
audit firm size (BIG4OFC) and audit office size (OFCSIZE). Last, clients located in states with a larger
ethnic minority population should have a higher probability of hiring an EMAP. Thus, we include an
indicator variable for California (CALIFORNIA) and also the state-level minority rate (ETHNSTATE). 22 22F
22
According to 2017 survey estimates by the U.S. Census Bureau, California has the largest ethnic minority
population. Because we find that Florida has the highest relative representation of EMAPs, for robustness, we
repeated this test including an indicator variable for Florida. Our inference remains unchanged under this
specification.

21
5. Sample and main results
5.1 Sample
We obtain information on the audit partners, top client executives, and audit committee members,
respectively, from Form AP filed with the PCAOB and the ExecuComp and BoardEx databases. Our
initial sample consists of 5,351 client–year observations for fiscal years 2016 through 2020 23 for which
23F
the names of audit partners and top executives are available and Namsor can identify their ethnicity at a
threshold level of 50% accuracy or higher. We require that all clients in our sample be U.S. companies,
resulting in a loss of 147 observations. Moreover, we remove observations missing information on gender,
audit committee members, client-level characteristics, and the following year’s earnings or cash flows.
Our resulting sample for testing our first hypothesis using accounting restatement as the dependent
variable and for our third hypothesis comprises 4,497 client–year observations from 1,517 unique audit
partners. In this sample, 74 observations involve EMAPs, and 1,443 involve White audit partners. Our
tests of H1, where the dependent variable is earnings persistence or cash flow predictability, require one-
year-ahead data, which results in a loss of 331 observations and a sample of 4,166 observations. Finally,
we lose further observations when discretionary accruals are used to proxy for audit quality, with the
sample comprising 3,668 observations. Panel A of Table 1 presents these sample formation processes.
Testing H2 does not require executive data from ExecuComp. This sample is not limited to
Standard & Poor’s (S&P) 1,500 companies. As shown in Panel B of Table 1, there are 9,742 partner–year
observations for which APE information is identifiable. Among the 2,740 unique audit partners, 171
(6.2%) are ethnic minorities. In Panel C, the first and second columns present the distribution of the 583
EMAP observations by state (numbers and percentages, respectively).
[Insert Table 1 About Here]
5.2 Results for H1
Panel A of Table 2 presents the descriptive statistics for the variables used to test H1. The mean
value of ETHNAP is 4.5%, indicating that the proportion of audit partners who are ethnic minorities is
23
Effective January 31, 2017, all registered public accounting firms must file Form AP with the PCAOB.

22
fairly low. The proportion of top ethnic minority executives (ETHNTEAM) is 6.7%, and 19.7% of
companies have at least one ethnic minority member on their audit committee. We find that 5.3% and
11.3% of CEOs and CFOs are, respectively, women. The proportion of female audit partners is 15.7%.
This figure indicates that women are also vastly underrepresented among audit partners; still, their rate is
about 3.5 times that of EMAPs. On average, the signed and absolute values of discretionary accruals
(DISACCR and ABSDISACCR, respectively) are 0.044 and 0.086, respectively. The likelihood of a
restatement is 3.4%. The mean of audit fees is $4.5 million. The mean values of ROALEAD and
OCFLEAD are 0.024 and 0.080, respectively.
Panel B of Table 2 presents the descriptive statistics, separately for ethnic and White auditors. We
find that absolute discretionary accruals and audit fees are lower in companies with EMAPs (significant at
the 0.10 level). We also observe significant differences in some of the control variables, such as leverage,
firm age, and dividends, between the two groups, which reinforces the importance of controlling for them
in a multivariate setting.
We use five measures of audit quality—earnings persistence (model (1)), the predictive value of
earnings for future cash flows (model (2)), and signed and unsigned discretionary accruals, restatements,
and audit fees (model (3)). The multivariate results of models (1) and (2) are presented in Panel C of
Table 2. In columns (1) and (2), the dependent variables are ROALEAD and OCFLEAD, respectively. In
column (1), the coefficient on ROA is positive and significant, consistent with earnings persistence. The
coefficient on ROA×ETHNAP is 0.436 and significant at the 0.10 level. This result provides some
evidence that earnings persistence is higher when the engagement partner is an ethnic minority, relative to
when the audit partner is White. In column (2), the coefficient on ROA is 0.805 and significant at the 0.01
level, which is consistent with the current period’s earnings being predictive of the next period’s cash
flows. The coefficient on ROA×ETHNAP is 0.405 and significant at the 0.01 level. This result indicates
that the predictive value of current earnings for the next period’s cash flows is higher when the
engagement partner is an ethnic minority. As for the control variables, we find that female audit partners
are associated with higher earnings persistence and greater earnings predictability of future cash flows,

23
whereas having an ethnic minority on the audit committee has little impact on the earnings persistence or
earnings predictability of future cash flows. In addition, the earnings persistence and earnings
predictability of future cash flows are significantly lower for companies with more geographic segments
and a more volatile operating income. Some other control variables are only significant in one of the
models.
The multivariate results with signed and unsigned discretionary accruals, restatements, and audit
fees as proxies for audit quality are presented in Panel D of Table 2. The coefficients on ETHNAP, our
variable of interest, in columns (1) to (3) are -0.016, -0.021, and -0.154, significant at the 0.10 and 0.01
levels and insignificant, respectively. These results indicate that EMAPs are associated with a lower
magnitude of signed and unsigned discretionary accruals, but not with a different restatement
likelihood. 24 Our sample contains the 1,500 largest traded companies, where restatements are less
24F
common (only 3.4%), which is even lower than the 5.4% for the remaining companies in the intersection
of Compustat and Audit Analytics (untabulated). Thus, a possible reason for the lack of a significant
difference in the restatement likelihood between EMAPs and White audit partners is low test power due
to the infrequent occurrence of restatements. With regard to audit fees, the coefficient on ETHNAP in
column (4) is positive and significant at the 0.10 level. 25 Economically, audit fees are 6.8% higher for
25F
EMAPs than for White partners. 26 The higher audit fees charged by EMAPs could suggest that they exert
26F
more effort and expertise in their work, resulting in higher-quality financial reporting. Overall, five of the
six audit quality measures we employ provide significant evidence at the 0.10 level or better of a positive
association between EMAPs and audit quality. Taken together, these results provide some evidence that
the clients of EMAPs are associated with higher audit quality.
24
We also examine the performance-adjusted discretionary accruals using the model of Kothari et al. (2005) and
discretionary accruals using the Dechow–Dichev (2002) model and obtain similar results. These results indicate that
our findings are not sensitive to alternate measures of discretionary accruals.
25
The likely reason for the difference from the univariate results that showed weakly significant higher audit fees for
White audit partners is that several variables that are significantly associated with audit fees (e.g., audit office size
and the number of the client’s geographical segments) vary systematically between EMAPs and White audit partners.
26
This result is consistent with prior research, which finds that female audit partners (another minority group) are
also associated with higher audit fees (Hardies et al. 2020; Lee et al. 2019).

24
The tests of H1 can suffer from functional form misspecification and produce biased estimates,
because the relation between outcome and explanatory variables in our model could be misspecified
(Shipman et al., 2017). To mitigate the concern of functional form misspecification, we employ the
entropy balancing weighting method, which decreases reliance on the specification of the relations
between variables. Panel A of Table 3 presents the results of models (1) and (2) and Panel B those of
model (3) for an entropy-weighted sample. The results are qualitatively very similar to those in Table 2,
and the coefficients of all the variables of interest (except for the restatement coefficients, which remain
insignificant) are significant at the 0.05 level or better. 27

27F
In addition, it is possible that EMAPs are matched with clients having higher financial reporting
quality, which would explain the positive association between financial reporting quality and EMAPs.
This endogeneity problem of self-selection exists in many empirical archival studies on audit partner
quality, given that the client–partner matching process is unlikely to be random (Lennox & Wu, 2018). To
address self-selection, we implement a 2SLS IV approach (Lee et al., 2019). Considering that our
endogenous variable ETHNAP is binary, the use of a regular 2SLS approach could lead to biased
estimates (Wooldridge, 2010). Thus, we follow Adams et al. (2009) and build a three-step 2SLS model.
We use the state-level proportionate rate of ethnic minorities in the population (ETHNSTATE) as our IV,
since it is likely to be associated with the audit partner assignment process, but unlikely to be associated
with audit quality. In the first step, using a probit model, we regress the ethnicity of the audit partner
(ETHNAP) on the IV, ETHNSTATE, and the other controls. From this step, we calculate the fitted
probability of an EMAP (ETHNAP_HAT). In the second step, we regress ETHNAP on the fitted
probability from the previous step (ETHNAP_HAT) and the other controls and obtain the predicted values
27
Entropy balancing weighting (Hainmueller, 2012) is an effective tool to control for potential differences in the
observed covariates between the treatment and control samples. After entropy balancing, the means of all the
determinants of having an EMAP for the treatment sample and the control sample are equal. Therefore, this method
helps reduce concerns about functional form misspecification. An advantage of using entropy balancing is that it can
achieve a higher degree of covariate balance without information loss by retaining all the observations. However,
the entropy balancing technique is less effective when concerns exist regarding differences in the unobserved
covariates between the treatment and control samples.

25
of ETHNAP (ETHNAP_P). In the third step, we regress discretionary accruals, accounting restatements,
and audit fees on the predicted value of the second step (ETHNAP_P) and the other controls. 28 28F
To check the validity of our IV, we examine whether the first-stage F-statistic (the second-step
regression of the three-step 2SLS model) falls above 10, the recommended benchmark for an appropriate
instrument (Stock et al., 2002). The F-statistic is 27.24 (untabulated). In addition, we test whether our IV
is associated with audit quality by including ETHNSTATE as an explanatory variable in models (1) to (3).
In all three models, the coefficient of ETHNSTATE is insignificant (untabulated). Thus, the IV we use
appears to be valid.
Panel C of Table 3 presents the results using the three-step 2SLS model. Columns (1) and (2)
report the results of the first two steps. From column (1), we see that our IV, the state-level proportionate
rate of ethnic minorities in the population (ETHNSTATE), is significant at the 0.01 level. This result
indicates that, in states with a higher proportion of ethnic minorities, there are also more EMAPs. The
results of the second step in column (2) indicate that the fitted probabilities obtained from the first stage
are significantly associated with ETHNAP. The significance of the coefficient on ETHNAP_P in columns
(3) to (6) are qualitatively similar to those on ETHNAP in columns (1) to (4) in Table 2, Panel D. Overall,
the results from all the audit quality tests provide some evidence inconsistent with the null H1 and in
support of the notion that the clients of EMAPs have higher financial reporting quality, suggesting higher
audit quality. 29
29F
28
For the earnings persistence and earnings predictability of future cash flow tests (models (1) and (2)), we only use
the entropy balancing weighting approach, because these tests use piecewise linear models, where the endogenous
variables are interaction terms (see Beaver et al. (2011) for a discussion of the challenges in applying the IV
approach to piecewise linear models). Nonetheless, in a sensitivity test, we use ETHNAP_HAT and
ETHNAP_HAT×ROA as instruments for ETHNAP and ETHNAP×ROA and re-estimate models (1) and (2). We
continue to find that the earnings persistence and earnings predictability of future cash flows are significantly higher
for companies with EMAPs.
29
The use of company fixed effects is not feasible in our sample. This is because of the very low variation in APE at
the company level. For example, out of 3,668 company–year observations, only 38 observations (about 1% of the
sample) experienced a change in APE. Nonetheless, when we estimate models (1) to (3) with company fixed effects,
we find that the coefficient on ETHNAP is marginally significant for signed and unsigned discretionary accruals and
insignificant for the other proxies.

26
5.3 Results for H2
Next, we turn to H2 regarding the characteristics of the work environment of EMAPs. These
results are presented in Table 4. Panel A presents the descriptive statistics for the variables in models (4)
through (7). We find that 63.6% of the audit partners in our sample work in Big 4 offices, which is
expected, given the dominance of the Big 4 in the audits of large publicly listed companies. About 53% of
the offices in our sample have at least one prestigious client. The mean value of the natural logarithm of
total client assets is 10.36 (total client assets of $437 billion). The mean of the natural logarithm of the
average audit fee per partner in an office is 14.214 (average audit fees of $2.85 million). In addition, the
proportion of EMAPs is 6.0%, the average audit partner age is 47.4 years, and each partner, on average,
worked in 1.26 states. 30 The proportion of female audit partners is 15.5%. The natural logarithm of the
30F
average number of followers of an audit partner on LinkedIn is 6.47 (average of 876 followers), and
approximately 7% of the audit partners obtained their bachelor’s degree abroad.
Panel B of Table 4 presents a univariate comparison of the characteristics of the audit offices in
which ethnic minority and White audit partners work. We find that EMAPs are less likely to work in Big
4 offices (46.5% versus. 64.7%), in offices with prestigious clients (32.6% versus 54.2%), in smaller
offices in terms of client assets, and in offices where the average audit fees per partner is lower (all
differences significant at the 0.01 level). Finally, ethnic minority partners are younger and have more
followers on LinkedIn. These two findings are likely to be explained by the fact that, in the past, ethnic
minorities were even less likely to become partners, such that older partners are predominantly White and
less active on social media. We also find that EMAPs are less likely to travel out of state for work and are
more likely to have studied abroad.
The multivariate results in Panel C of Table 4 show that the coefficient on ETHNAP is negative
and significant across all columns. Compared to White audit partners, EMAPs are about 16% less likely
30
We also find that 57.1% of the travel occurs within the region (untabulated).

27
to work in Big 4 audit offices and 15% less likely to work in offices with at least one prestigious client. 31 31F
EMAPs work in audit offices that are 70% smaller, and the average audit fees in the offices where they
work are 13% lower. 32 Overall, the findings are consistent with the univariate results in Panel B,
32F
indicating that ethnic minority auditors are less likely to become partners in audit offices that are
generally more desirable. Because audit partner compensation is highly correlated with client size
(Knechel et al., 2013) and audit fees, our finding could suggest that, on average, EMAPs earn less than
White partners.
We note two possible explanations for these findings. One possibility is that ethnic minorities
experience unequal treatment either when offered initial employment or when promotion decisions are
made in those offices. Therefore, EMAPs will be underrepresented in more desirable audit offices. This
explanation is consistent with the glass ceiling argument, in that barriers to well-paying jobs are higher
for ethnic minorities. The second possibility is that EMAPs self-select not to work in these offices. In
Section 6, we provide additional tests to shed light on these two possibilities.
5.4 Results for H3a and H3b
The results of model (8) on the association between APE and client characteristics (H3a and H3b)
are presented in Table 5. Panel A presents the descriptive statistics for the variables used in model (8).
The comparative univariate results in Panel B indicate that, relative to White audit partners, EMAPs are
more likely to be associated with companies with ethnic minority representation in top management (38.1%
versus 24.4%), a higher proportion of executives who are ethnic minorities (13.9% versus 6.4%), and an
ethnic minority CEO (17.3% versus 5.6%) or an ethnic minority CFO (13.4% versus 6.4%). We also find
that EMAPs are more likely to be associated with important clients (40.6% versus 31.0%) but less likely
to be associated with prestigious clients (13.4% versus 16.7%). In addition, we do not find that ethnic
31
We use logit models in columns (1) and (2). Thus, the difference in the probabilities of 16% and 15% are
calculated based on the marginal effect of the change in probability when the value of the independent variable of
interest, ETHNAP, changes from zero to one.
32
The sample size becomes smaller for column (4) because some offices are missing client audit fees. Our results
remain similar if we restrict the sample size of the first three measures to that of column (4).

28
representation on the audit committee is significantly different between the clients of EMAPs and the
clients of White partners. Other client characteristics also vary between the two groups. Relative to
companies served by White audit partners, companies served by EMAPs are smaller (with a mean of
$18.528 billion versus $29.681 billion), younger, less leveraged, more likely to have a female CFO, less
likely to be audited by Big 4 auditors, and more likely to be audited by smaller audit offices (with
differences in mean values significant at the 0.10 level or less). We also note that companies served by
EMAPs are more likely to be located in states with higher ethnic minority proportional representation and
in California (significant at the 0.01 level).
Panel C of Table 5 presents the multivariate regression results. In columns (1) to (3), we include
industry and year fixed effects, and in columns (4) to (6), we also include audit firm fixed effects. The
coefficients on ETHNEXE, ETHNTEAM, and ETHNCEO are positive and significant, whereas the
coefficients on ETHNCFO and ETHNAC, IMPORTANT, and PRESTIGE are insignificant in both model
specifications. These results indicate that EMAPs are more likely to be associated with clients having
ethnic minority representation in top management, but not in the audit committee. Thus, H3a with regard
to ethnic representation in the client’s top management is supported, whereas H3a with regard to ethnic
33
representation on the client’s audit committee is not supported. 33F Economically, the likelihood of
employing an EMAP increases by 5.2% when clients have ethnic minority CEOs, compared to clients
with White CEOs. These results are consistent with the homophily principle, as well as with the findings
of Cohen et al. (2010), Dhaliwal et al. (2015), and Fiolleau et al. (2013) concerning the dominant role that
senior management continues to play in the auditor selection process in the post-SOX era. 34 The 34F
coefficients on IMPORTANT and PRESTIGE are not significant. That means that, within the firm, the
likelihood of working for important or prestigious clients is not significantly different between EMAPs
33
To strengthen our test of client–partner association, we perform a sensitivity test by using only first-year
engagements. Though the sample is significantly reduced under this restriction, we continue to find a significant
(albeit weaker) result that EMAPs are more likely to be associated with clients having ethnic minority representation
in management.
34
A recent study by Downes et al. (2022) finds that only 22% of audit committees voluntarily disclose involvement
in the audit partner selection process.

29
and White partners. Thus, we fail to reject the null H3b. Among the control variables, BM is negatively
associated with ETHNAP and the state-level ethnic minority rate (ETHNSTATE) is positively associated
with ETHNAP in all models. In the last row of Table 5, we report the receiver operating characteristic
(ROC) statistic, which ranges from 0.806 to 0.834, suggesting that our model has reasonable predictive
power.
6. Supplementary analyses and robustness tests
6.1 How are EMAPs treated following an audit failure?
We examine whether EMAPs face differential treatment under adverse circumstances. Cook and
Glass (2014) find that, while there is no difference in the length of tenure of minority and White CEOs,
once company performance declines, minority CEOs are more likely to be replaced. These results suggest
that, under normal circumstances, minority CEOs are not treated less favorably than White CEOs.
However, minority CEOs are more likely to be held responsible for bad outcomes. Cook and Glass (2014)
term this phenomenon the savior effect. Prior studies (Hennes et al., 2014; Liu et al., 2009) suggest that
stakeholders are likely to hold auditors accountable for restatements and would consider dismissing the
auditor over the audit failure. If the savior effect extends to auditors, then EMAPs are more likely than
White audit partners to be blamed for the audit failure and to be replaced after restatements.
To test our conjecture, we estimate the following logit model on a sample of companies that
restated their earnings in year t:
RESTATETO = ß0 + ß1ETHNAP + ß2FEMALEAP + ß3PARTNERAGE+ ß4LFOLLOW+

ß5FORGNSCHL+ ß6BIG4OFC + ß7TENURE + ß8CAR + ß9ICW + ß10GC + ß11SIZE +
ß12LEV + ß13BM + ß14AGE +ß15LOSS + ß16OCF + ß17OPINSD + ß18BSEGMENT +
ß19GSEGMENT + ß20FOREIGN+ YEAR FE + INDUSTRY FE+ ɛt (9)
All observations for this test are measured in the restatement year, except for the dependent variable,
RESTATETO, which equals one if there was an audit partner change within two years following a
restatement announcement, and zero otherwise. An insignificant coefficient on ß1 would be consistent
with no significant difference in the likelihood of audit partner turnover between EMAPs and White audit

30
partners. On the other hand, a positive (negative) and significant ß1 would be consistent with EMAPs
being more subject to reprisal (absolution), relative to their White counterparts. Since partner turnover is
more likely when the restatement is more severe, we control for restatement severity using the three-day
cumulative abnormal stock return around the restatement announcement date (CAR). We also control for
the audit partner gender (FEMALEAP), age (PARTNERAGE), and network (LFOLLOW), whether the
audit partner graduated from a foreign university (FORGNSCHL), audit firm size (BIG4OFC), and audit
firm tenure (TENURE). Prior studies show that auditor turnover is more likely after the client receives a
negative audit opinion (Ettredge et al., 2011; Geiger et al., 1998). Therefore, we include indicator
variables for an ineffective internal control opinion (ICW) or a going-concern opinion (GC). All other
client-level control variables are as previously defined.
Untabulated univariate results show that the average partner turnover rate after earnings
restatements is 24.6%. This rate is significantly higher for ethnic minority partners than for White
partners (39.1% versus 23.8%). The multivariate results of model (9) are presented in Table 6. In column
(1), we report the results, considering all audit partner changes, while in columns (2) and (3), we exclude
audit partner changes involving audit firm changes. In column (3), we also include audit firm fixed effects.
Based on the positive and significant coefficient on ETHNAP in columns (1) to (3), the likelihood of
being replaced following earnings restatements is 32.9%, 29.5%, and 33.8% higher for ethnic minority
partners than for White partners, respectively. This evidence is consistent with the savior effect, in that
minorities are more likely to be blamed for poor performance. 35 We also find that the restatement severity
35F
is negatively related to audit partner replacement (i.e., the more negative the return, the more likely the
auditor will be replaced). Thus, while the results in Table 5 do not indicate that EMAPs are less likely to
be associated with important or prestigious clients, in the presence of undesired outcomes, such as
earnings restatements, EMAPs face more negative treatment.
35
Companies are required to rotate audit partners every five years. If, for some reason, the rate of mandatory
rotation is higher for EMAPs than for White audit partners, this can also lead to the higher turnover of ethnic
minority partners, regardless of restatement. To rule out this possibility, we checked the partner turnover rates for a
sample of companies without accounting restatements. For this sample, we did not find a significant difference in
partner turnover rates between ethnic minority partners and White partners.

31
6.2 APE and partner–client association: A finer examination
Next, we fine tune our tests of homophily by examining whether audit partners are more likely to
work with clients of the same ethnicity. Specifically, we run the following two models to examine the
association between Asian (Hispanic) audit partners and clients with Asian (Hispanic) executives on the
top management team. 36 36F
APASIAN = ß0 + ß1ASIANEXE + ß2HISPEXE + ß3ETHNAC + ß4IMPORTANT + ß5FEMALECEO +

ß6FEMALECFO + ß7SIZE + ß8LEV + ß9LOSS + ß10OCF + ß11BM + ß12OPINSD +
ß13BSEGMENT + ß14GSEGMENT + ß15FOREIGN + ß16BIG4OFC + ß17OFCSIZE +
ß18CALIFORNIA + ß19ETHNSTATE + INDUSTRY FE + YEAR FE + ɛt (10)
APHISP = ß0 + ß1HISPEXE + ß2 ASIANEXE + ß3ETHNAC + ß4IMPORTANT + ß5FEMALECEO +

ß6FEMALECFO + ß7SIZE + ß8LEV + ß9LOSS + ß10OCF + ß11BM + ß12OPINSD +
ß13BSEGMENT + ß14GSEGMENT + ß15FOREIGN + ß16BIG4OFC + ß17OFCSIZE +
ß18CALIFORNIA + ß19ETHNSTATE + INDUSTRY FE + YEAR FE + ɛt (11)
where APASIAN equals one if the audit partner is Asian, and zero otherwise; APHISP equals one if the
audit partner is Hispanic, and zero otherwise; and ASIANEXE and HISPEXE are indicator variables for
Asian and Hispanic representation in the top management team, respectively.
Panel A of Table 7 presents the distribution of EMAPs and top executives by ethnicity. Asian,
Hispanic, and Black audit partners comprise 1.6%, 2.6%, and 0.3% of the audit partner population in our
sample, respectively. Within the client population, 14.3%, 11.8%, and 1.4% have at least one Asian,
Hispanic, or Black executive in their top management team, respectively. Panel B presents the results of
models (10) and (11). We find that the coefficient on ASIANEXE is positive and significant at the 0.10
level in column (1), but insignificant in column (2), and the coefficient on HISPEXE is positive and
significant at the 0.01 level in column (2), but insignificant in column (1). These results indicate that
Asian (Hispanic) audit partners are more likely to be associated with clients having Asian (Hispanic)
representation in top management. These results provide further support for the homophily principle and
suggest that ethnicity matters in audit partner–client associations.
36
The very small number of Black audit partners and Black top executives (see Panel A of table 7) precludes us
from conducting a similar analysis for Black audit partners and clients with Black representation on the management
team.

32
[Insert Table 7 About here]
6.3 APE and alternative audit quality measures
To provide further support for H1, we use the receipt of accounting-related SEC comment letters
and the number of accounting-related issues mentioned in the comment letter as two additional audit
quality measures. The receipt of a comment letter reflects poorly on both the client and the auditor. These
letters are usually related to accounting/reporting matters that do not rise to the level of a restatement but
will require the company to amend its financial statements or make a commitment to change accounting
practices in subsequent periods. Therefore, companies that received accounting-related comment letters
are considered to have lower financing reporting quality/audit quality. 37 We present the results of this
37F
analysis in Table 8. In column (1), the dependent variable is COMLETR, an indicator variable that equals
one if the company received an accounting-related comment letter for the year’s financial statements, and
zero otherwise. Thus, we use a logistic regression. In column (2), the dependent variable is NCOMLETR,
the number of accounting-related issues mentioned in the comment letter (equal to zero if the company
did not receive a comment letter or the letter did not mention any accounting issue). Thus, we use an
ordinary least squares regression. We find that EMAPs are associated with a lower likelihood of receiving
an accounting-related comment letter and fewer accounting-related accounting issues in the comment
letter, suggesting higher audit quality. This provides further evidence on the association of EMAPs and
audit quality (H1).
[Insert Table 8 About here]
6.4 Effect of co-ethnicity
In this section, we examine whether co-ethnicity influences financial reporting quality. According
to the homophily principle, a strong bond is more likely to develop when the audit partner and the senior
37
Hribar et al. (2014) show that comment letters are negatively associated with earnings quality. Christensen et al.
(2016) report that audit partners and senior managers at audit firms ranked the receipt of comment letters and
enforcement actions as the second strongest signal of low audit quality (after restatements). Finally, Cassell et al.
(2013) document a link between the receipt of an SEC comment letter and the number of topics mentioned in the
letter and low financial reporting quality (e.g., restatements) and audit quality (small audit firms). Taken together,
these studies support the notion that comment letters are associated with low audit quality.

33
executives or the audit committee are of the same ethnicity. Dodgson et al. (2020) show that matching
clients with partners who have similar characteristics has both positive and negative effects. On the
positive side, better partner–client relationships can improve audit efficiency and information sharing. On
the negative side, close relationships between the audit partner and the client can impair auditor
independence. Thus, how co-ethnicity affects financial reporting quality is an empirical question.
Berglund and Eshleman (2019) examine the nonprofit setting and find that ethnic similarity between the
client manager and the audit partner is negatively associated with audit quality. However, nonprofit
organizations can be very different from for-profit organizations. Phan et al. (2022) find that cultural
proximity between the audit partner and the CFO improves financial reporting quality; however, cultural
proximity to the CEO has no such effect. Therefore, we make no prediction on the association between
co-ethnicity and financial reporting quality for our sample companies. To test this effect, we create the
indicator variable COETH, which equals one if the audit partner and at least one senior executive or audit
committee member are ethnic minorities, and zero otherwise. Then, we interact COETH with ROA and
include COETH and the interaction term in models (1) and (2), and COETH in model (3). Untabulated
results show no evidence that co-ethnicity is significantly associated with audit quality; moreover, we
continue to find a positive relation between APE and audit quality. 38 38F
6.5 Do EMAPs self-select to work in less desired offices?
The results in Table 4 related to H2 show that EMAPs are more likely to work in audit offices
that are smaller, less reputable, and less likely to have prestigious clients and earn lower fees. These
findings could suggest that ethnic minorities face bias in the audit profession; therefore, it is harder for
them to either be offered initial employment in more desired audit offices or advance to partnership in
those offices. However, these findings could also be due to ethnic minority auditors self-selecting not to
work for more desirable audit offices. To mitigate the possibility that these findings are driven solely by
self-selection, we examine how partner age affects the association between APE and the work
38
Our results are similar if we consider the co-ethnicity of the audit partner and senior management and the audit
committee separately.

34
environment. We surmise that, if ethnic minorities face bias in the promotion process, it will be stronger
earlier in their careers, before they have had enough opportunities to establish themselves. Later in their
careers, as their abilities become more proven, it should become more difficult to treat them unfairly.
However, if there is no bias against ethnic minorities and they self-select to work in less desired offices,
then partner age would not impact the association between APE and the work environment. We use
partner age to proxy for professional experience, because age and experience should be strongly
correlated. We then re-estimate models (4) to (7) while interacting ETHNAP with the indicator variable
SENIOR, which equals one if the partner’s age is above the sample median, and zero otherwise. We find
that the coefficient on the interaction variable is positive and significant (at least at the 0.10 level) when
the dependent variable is PRESTIGEOFC, OFCSIZE, or LAVEFEE, but insignificant when the
dependent variable is BIG4OFC (untabulated). In other words, we find some evidence that the negative
association between EMAPs and the likelihood of working in a desired audit office is mitigated when the
partner is older. This finding suggests that our results are unlikely to be driven solely by self-selection.
However, we acknowledge that we cannot completely rule out the self-selection explanation.
Another reason why self-selection is unlikely to be the only explanation for our findings on
EMAPs’ work environment is that we find some evidence that EMAPs are associated with higher audit
quality. If our findings were solely driven by self-selection and if ethnic minorities did not face different
treatment or performance pressure, we would not expect them to deliver higher audit quality than White
partners. The fact that we find them to be associated with higher audit quality makes it unlikely that self-
selection is the only explanation for EMAPs working in different environment.
7. Discussion and conclusions
Our study broadly examines the implications of APE for auditing. We aim to inform audit
practitioners by addressing three important questions: 1) Are EMAPs associated with higher or lower
audit quality? 2) Do EMAPs face different treatment in the profession compared to White audit partners?
3) Does partner ethnicity matter in client–auditor alignment? Specifically, we provide empirical evidence

35
on the associations between APE and audit quality, audit pricing, partners’ work environment, client–
partner alignment, and career consequences after an audit failure. For the first question, using multiple
measures of financial reporting quality, we find that, for all measures (except restatements), clients of
EMAPs have higher financial reporting quality (at the 0.10 level or less), providing some evidence of a
positive association between EMAPs and audit quality. This result is also supported by our finding that
audit fees are higher for EMAPs. For the second question, we find empirical evidence that EMAPs face
different treatment. With regard to the work environment, we find that EMAPs are more likely to work in
less desirable audit offices, such as non-Big 4 offices, smaller offices, offices without prestigious clients,
and offices earning lower audit fees. With regard to the third question, we find that EMAPs are more
likely to be in charge of engagements with clients having ethnic representation in top management, but
ethnic representation on the audit committee has no effect on client–audit partner alignment. We do not
find that EMAPs are less likely to be in charge of engagements with important or prestigious clients.
Finally, we find that EMAPs are more likely than White partners to be replaced after a restatement.
Taken together, our results suggest that, despite working in less desirable offices, having their
alignment with client affected by ethnic representation in the client’s top management, and being more
likely to be replaced following audit failure, EMAPs seem to be associated with higher audit quality.
These results are consistent with the glass ceiling theory and tokenism theory, which suggest that EMAPs
are under greater performance pressure and face higher barriers to obtain high-level jobs. Therefore, they
need to work harder and deliver stronger performance to prove themselves. The finding that EMAPs are
more likely to work with clients having ethnic representation in top management is in line with the
homophily principle that similarity breeds connections. In addition, the findings that EMAPs are not less
likely to be assigned important or prestigious clients but are more likely to be replaced following a
financial restatement indicate that, while EMAPs might not face restrictions in serving important clients,
they face harsher judgement following an audit failure. This finding is consistent with the savior effect
documented for ethnic CEOs by Cook and Glass (2014).

36
Our findings have important implications for audit firms and companies (including their audit
committees), since they relate to important aspects of the work of EMAPs. For audit firms, the evidence
that EMAPs are associated with higher-quality auditing points to a direct benefit of promoting ethnic
minority auditors to partner positions and the continuous need to foster diversity within audit firms. While
accounting firms are making strides in recruiting talented minorities, people of minor ethnicities remain
greatly underrepresented within the profession at all ranks, especially at the partnership level. In addition,
they tend to work in less desirable audit offices. We call for greater efforts in recruiting, nurturing, and
promoting talented ethnic audit professionals, including fast-tracking promising ethnic audit managers to
partnership. Ethnic minorities should receive opportunities equal to those of their White peers when it
comes to career advancement and the choice of work environment. We are struck by a comment from a
White male managing partner and board member of an accounting firm who stated, “There is pervasive
and persistent discrimination at senior levels, despite public expressions to the contrary” (IMA, 2021, 32).
Clearly, much work remains to be done to make sure that ethnic accounting professionals and their
contributions are recognized. For companies and their audit committees, our results suggest that clients
will benefit from hiring an EMAP. Therefore, it is imperative that EMAPs be given equal opportunities to
be in charge of their audits. Moreover, EMAPs should not be treated more negatively following an audit
failure.
We acknowledge that our study is subject to several limitations. First, we use software to infer
ethnicity based on first and last names, which introduces measurement error. However, the validation test
we conduct should ease concerns of significant misclassification. Second, the proportion of audit partners
of ethnic minority is low in our sample, leading to tests of low power. However, this fact goes against
finding a significant effect of APE on audit outcomes. Third, the samples used for testing some
hypotheses are limited to companies in the S&P 1500 index. Therefore, our findings might not be
generalizable to smaller companies. Fourth, our tests are subject to endogeneity concerns, a common
issue in accounting studies. We make sincere efforts to minimize these concerns by applying various
econometric techniques and by controlling for partner-specific characteristics. However, we acknowledge

37
that this might not be enough to rule out the self-selection explanation for some of our results. The low
number of EMAPs in general and the very few APE changes in particular prevent us from conducting a
meaningful difference-in-differences analysis that would provide evidence of a causal relation. Therefore,
throughout the paper, we refrain from suggesting causal relations.
Given the descriptive nature of our study, we call on future research to do more work in
examining potential causality in the relations we have documented. Given the dearth of research on
EMAPs, as well as more broadly on diversity, equity, and inclusion issues in the accounting profession,
opportunities for research are plentiful. For example, Issues in Accounting Education, published by the
American Accounting Association, has called for research on diversity, equity, and social justice in
accounting education. One avenue for future research would be to examine whether investors and lenders
perceive differences in the audit quality between ethnic and White audit partners. Future research could
also explore reasons for EMAPs choosing to work in certain audit offices (e.g., a better fit, a lack of
colleagues recognized at certain audit offices, being closer to family or large airports, community
considerations, and work–life balance). Finally, future research could examine the effect of ethnicity on
audit partners in an international context.

38
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Appendix A: Studies using Namsor for ethnicity or gender identification
Title Authors Year Outlet
Localized Twitter opinion Akib, S., Hridoy, A., Ekram, 2015 Decision Analytics Journal
mining using sentiment M., Islam, M., Ahmed F., 2(8): 1-19
analysis and Rahman, R.
She Figures 2015 Directorate-General for 2016 Publications Office of the EU
Research and
Innovation (European
Commission)
The role of gender in Gorbacheva, E., Stein, A., 2016 Business and Information
business process and Schmiedel, T. Systems Engineering 58
management competence (3): 213–231
supply
Sentiment trends on natural Bala, M., Rao, S., and Babu, 2017 International Journal of Civil
disasters using location- R. Engineering and Technology
based Twitter opinion mining 8(8): 9-19
Location-based Twitter Jain, A., and Jain, M. 2017 Global Journal of Enterprise
opinion mining using Information System 9(2): 28-32
common-sense information
The startup Europe Rossetti, F., Nepelski, D. 2018 Office of the European Union
ecosystem And Cardona, M.
Gender gap in the market for Tsolmon, U. 2018 Unpublished paper, Washington
top managers: The role of University in Saint Louis
firm performance
information
Data and techniques used for Bhagat, V. 2018 Feminist Research 2(2): 77-86.
an analysis of women
authorship in STEMM: A
review
Taking stock: Data and The EQUALS Research 2019 United Nations University
evidence on gender digital Group
equality
Where are females in OSS El Asri, I., and Kerzazi, N. 2019 IFIP Advances in Information
Projects? Socio technical and Communication
interactions Technology 568
Jack of all trades and master Nagle, F., and Teodoridis, F. 2019 Strategic Management Journal
of knowledge: The role of 41(1): 55-85.
diversification in new distant
knowledge integration
The effect of immigrants in Drechsler, J., Bachmann, J., 2019 Journal of International
the founding team on the and Engelen, A. Entrepreneurship 17: 305–333
international attention of new
ventures
Gendered geography: An Rosemary, M., J. Lundine, 2019 The Lancet Global Health
analysis of authors in The B. Irwin, and K. Grépin
Lancet Global Health
An empirical study of El Asri, I., Kerzazi, N., 2019 Information and Software
sentiments in code reviews Uddin, G., Khomh, F., and Technology 114: 37-54.

45
Idrissi, M.
Gendered capital: How Solal, I. 2019 Unpublished paper, INSEAD
similarity, stereotypes, and
signals structure the market
for entrepreneurial capital
The real effects of Naaraayanan, S., 2021 Unpublished Paper, Hong Kong
environmental activist Sachdeva, K., and Sharma, University of Science &
investing V. Technology
Name similarity encourages Munz, K., M. Jung, and A. 2020 Marketing Science,39(6): 1071-
generosity: A field Alter. 1091.
experiment in email
personalization
Tracking the digital footprint United Nations Economic 2020 United Nations Publication,
in Latin America and the Commission for Latin S.19-01128.
Caribbean. Lessons learned America and the Caribbean
from using big data to assess
the digital economy
In living color: Does in- Barrios, J., Giuliano, L., and 2020 Unpublished paper, University
person screening affect who Leone, A. of Chicago
gets hired?
Análisis de la huella digital Cimoli, M., Vilgis, V., Ho, 2020 United Nations Publication
en América Latina y el Y., Jin, X., Lu, K., Rascon-
Caribe: Enseñanzas extraídas Garcia, K., Reese, M., and
del uso de macrodatos (big Hilbert, M.
data) para evaluar la
economía digital
Board co-option and default Baghdadi, G., Nguyen, L., 2020 Journal of Corporate Finance
risk and Podolski, E. 64: 1-21
Gender, law enforcement, Nirivikar, J. 2020 American Political Science
and access to justice: Review 114(4): 1035-1054.
Evidence from all-women
police stations in India
Discrimination against de Rassenfosse, G., and 2020 Journal of International
foreigners in the U.S. patent Hosseini, R. Business Policy 3: 349-366.
system
Context-sensitive gender Das, S., and Paik, J. 2020 Information Processing &
inference of named entities Management 58(1).
in text
Who’s the boss? Evidence of Snellman, K., and Younkin, 2021 Unpublished paper, INSEAD.
job seeker bias from a field P.
experiment
Gender and racial/ethnic Jones, G., Dhawan, N., 2021 Journal of Clinical Oncology
disparities in academic Chowdhary, A., Royce, T., 39(15)_suppl, 11009-11009
oncology leadership Patel, K., Chhabra, A.,
Knoll, A., Deville, C.,
Winkfield, K., Vapiwala, N.,
Duma, N., and Chowdhary,
M.

46
Appendix B: Variable definitions
Absolute value of discretionary accruals estimated from the modified Jones

ABSDISACCR
model.
ABSACCRLAG Absolute value of total accruals of the prior year scaled by total assets.
ACCRLAG Total accruals of the prior year scaled by total assets.
AGE Number of years the company has appeared in Compustat.
APASIAN Equals 1 if the audit partner is Asian, and 0 otherwise.
APHISP Equals 1 if the audit partner is Hispanic, and 0 otherwise.
Equals 1 for Asian representation on the top management team, and 0

ASIANEXE
otherwise.
BIG4OFC Equals 1 if the audit office is of a Big 4 firm, and 0 otherwise.
BM Ratio of the book value of equity to the market value of equity.
BSEGMENT Number of business segments.
CALIFORNIA Equals 1 if the client resides in California, and 0 otherwise.
Three-day cumulative abnormal stock return around the restatement

CAR
announcement date.
Equals 1 if the audit partner and one or more of the senior executives or the
COETH
audit committee are ethnic minorities, and 0 otherwise.
Equals 1 if the company received an accounting-related comment letter based

COMLETR
on the review of the current fiscal year financial statements, and 0 otherwise.
DISACCR Discretionary accruals estimated from the modified Jones model.
DIV Equals 1 if a dividend is distributed during the year, and 0 otherwise.
Equals 1 if a client’s audit committee has at least one ethnic minority member,
ETHNAC
and 0 otherwise.
Equals 1 if the auditor partner is an ethnic minority (i.e. belongs to one of the
ETHNAP ethnicities: Asian, Black non-Latino, Hispanic Latino), and 0 if the audit
partner is White non-Latino.
ETHNCEO Equals 1 if a client’s CEO is an ethnic minority, and 0 otherwise.

47
ETHNCFO Equals 1 if a client’s CFO is an ethnic minority, and 0 otherwise.
Equals 1 if at least one of the client's top executives is an ethnic minority, and
ETHNEXE
0 otherwise.
ETHNTEAM Proportion of ethnic minorities among the top executive team.
State-level ethnic minority ratio in the population as of 2017.

ETHNSTATE https://www.governing.com/gov-data/census/state-minority-population-data-
estimates.html
FEMALEAP Equals 1 if the audit partner is female, and 0 otherwise.
FEMALECEO Equals 1 if a client's CEO is female, and 0 otherwise.
FEMALECFO Equals 1 if a client's CFO is female, and 0 otherwise.
FOREIGN Ratio of income from foreign operations to total assets.
Equals 1 if the audit partner obtained a bachelor’s degree from a foreign

FORGNSCHL
university, and 0 otherwise.
GC Equals 1 if the client received a going-concern opinion, and 0 otherwise.
GSEGMENT Number of geographic segments.
Equals 1 for Hispanic representation on the top management team, and 0

HISPEXE
otherwise.
Equals 1 if the client received an ineffective internal control opinion under
ICW
Section 404 of the Sarbanes–Oxley Act, and 0 otherwise.
Equals 1 if the ratio of client total assets to total office-level audited assets is
IMPORTANT
larger than 10 percent, and 0 otherwise.
LAFEE Natural logarithm of audit fees.
LAVEFEE Natural logarithm of the average audit fees per partner of the audit office.
LEV Ratio of total debt to total assets.
Natural logarithm of the number of followers on the audit partner’s LinkedIn

LFOLLOW
page.
LOSS Equals 1 if a company has negative net income, and 0 otherwise.
Number of accounting-related issues mentioned in the comment letter. Equals

NCOMLETR 0 if the company did not receive a comment letter, or the comment letter did
not mention accounting-related issues.
OCF Cash flow from operations in year t, scaled by total assets.

48
OCFLEAD Cash flow from operations in year t+1, scaled by total assets.
OFCDIVERSE Ratio of female and ethnic minority partners in the audit office.
OFCSIZE Natural logarithm of total assets of the clients in the audit office.
Standard deviation of operating income, scaled by total assets over the prior
OPINSD
five fiscal years.
PARTNERAGE Age of the audit partner.
Equals 1 if the client appears on Fortune’s World’s Most Admired Companies

PRESTIGE
list during the 2016 to 2020 period, and 0 otherwise.
Equals 1 if the audit office has at least one prestigious client. Prestigious
PRESTIGEOFC clients are those appearing on Fortune’s World’s Most Admired Companies
list, and 0 otherwise.
Equals 1 if there is an accounting misstatement during the year, and 0

RESTATEMENT
otherwise.
Equals 1 if there is a change in the audit partner within two years following an
RESTATETO
earnings restatement announcement, and 0 otherwise.
ROA Earnings before extraordinary items in year t, scaled by total assets.
ROALEAD Earnings before extraordinary items in year t+1, scaled by total assets.
SENIOR Equals 1 for partners whose age is above the sample median, and 0 otherwise.
SIZE Natural logarithm of total assets.
TENURE Natural logarithm of audit firm tenure.
Number of states in which the audit partner has worked during the years 2016-
TRAVEL
2020.

49
Table 1 Sample selection
Panel A: Sample selection for Hypotheses 1 and 3

Client-year observations that have available ethnicity information for audit partners and top
executives for fiscal years 2016 to 2020 5,351
Non-U.S. companies (147)
Observations with missing gender information (638)
Observations with missing audit committee ethnicity information (14)
Observations with missing control variables (55)
Sample for Hypothesis 1 (restatements proxying for audit quality) and for Hypothesis 3 4,497
Number of unique audit partners 1,517
Number of unique ethnic audit partners 74
Number of unique White audit partners 1,443
Observations with missing information on the following year’s earnings or cash flows (331)
Sample for Hypothesis 1 (earnings persistence and cash flow predictability proxies for audit
quality) 4,166
Observations with missing discretionary accruals values (498)
Sample for Hypothesis 1 (discretionary accruals proxy for audit quality) 3,668
Panel B: Sample selection for Hypothesis 2

Partner-year observations with available ethnicity information for fiscal years 2016-2020 11,434
Observation with missing partner-level characteristics (1,692)
Sample for Hypothesis 2 9,742

50
Panel C: Ethnic minority audit partner observations by state using the Hypothesis 2 sample
State Number of Percentage
Observations
California 199 34.1
New York 111 19.0
Texas 66 11.3
Florida 65 11.2
Virginia 21 3.6
Pennsylvania 14 2.4
Ohio 12 2.1
Colorado 11 1.9
Illinois 10 1.7
Georgia 9 1.5
Maryland 9 1.5
Washington 9 1.5
New Jersey 8 1.4
Nevada 7 1.2
Massachusetts 5 0.9
Other States (less than 5 observations) 27 4.6
Total 583 100
This table describes our sample selection process for the tests of Hypotheses 1 and 3 (Panel A) and 2
(Panel B). Panel C presents the distribution of ethnic minority audit partner observations by state. Partner
identities, executive identities, and audit committee identities are from Form AP, Execucomp, and
BoardEx, respectively. Client-level financial information is from Compustat. Audit-related information is
from Audit Analytics.

51
Table 2 Audit partner ethnicity and audit quality
Panel A: Descriptive statistics for the variables used for testing Hypothesis 1
variable N Mean Median S.D. P25 P75
ROALEAD 4,166 0.024 0.033 0.121 0.007 0.073
OCFLEAD 4,166 0.080 0.079 0.085 0.041 0.125
ROA 4,166 0.031 0.036 0.107 0.010 0.076
DISACCR 3,668 0.044 0.031 0.113 -0.014 0.101
ABSDISACCR 3,668 0.086 0.060 0.085 0.024 0.122
RESTATEMENTS 4,497 0.030 0.000 0.172 0.000 0.000
LAFEE 4,497 14.719 14.647 1.017 14.050 15.359
AFEE (in millions) 4,497 4.500 2.297 7.457 1.263 4.683
ACCRLAG 3,668 -0.058 -0.047 0.078 -0.084 -0.019
ABSACCRLAG 3,668 0.069 0.051 0.069 0.026 0.089
ETHNAP 4,166 0.045 0.000 0.208 0.000 0.000
ETHNTEAM 4,166 0.067 0.000 0.139 0.000 0.000
ETHNAC 4,166 0.197 0.000 0.398 0.000 0.000
FEMALEAP 4,166 0.157 0.000 0.364 0.000 0.000
FEMALECEO 4,166 0.053 0.000 0.224 0.000 0.000
FEMALECFO 4,166 0.113 0.000 0.317 0.000 0.000
SIZE 4,166 8.283 8.189 1.804 7.074 9.383
LEV 4,166 0.456 0.499 0.282 0.209 0.664
BM 4,166 0.458 0.399 0.726 0.209 0.657
AGE 4,166 31.607 27.000 18.808 18.000 45.000
OPINSD 4,166 0.039 0.018 0.088 0.008 0.037
LOSS 3,688 0.193 0.000 0.395 0.000 0.000
BSEGMENT 4,166 2.762 2.000 2.018 1.000 4.000
GSEGMENT 4,166 2.741 2.000 2.508 1.000 4.000
FOREIGN 4,166 0.020 0.002 0.043 0.000 0.025
DIV 4,166 0.647 1.000 0.478 0.000 1.000
BIG4OFC 4,166 0.870 1.000 0.336 1.000 1.000
OFCSIZE 4,166 11.610 11.975 2.009 10.415 12.933
OFCDIVERSE 4,166 0.207 0.200 0.169 0.100 0.296
ROALEAD 4,166 0.024 0.033 0.121 0.007 0.073
OCFLEAD 4,166 0.080 0.079 0.085 0.041 0.125

Panel B: Descriptive statistics for the variables used for testing Hypothesis 1 – Clients audited by ethnic vs. White audit partners
Clients of ethnic partners Clients of White partners Difference (Mean)
variable N Mean Median N Mean Median
ROALEAD 188 0.012 0.037 3978 0.024 0.033 -0.012
OCFLEAD 188 0.071 0.086 3978 0.080 0.078 -0.009
ROA 188 0.031 0.041 3978 0.031 0.036 -0.001
DISACCR 152 0.036 0.023 3516 0.044 0.031 -0.009
ABSDISACCR 152 0.074 0.051 3516 0.087 0.060 -0.013*
RESTATEMENTS 202 0.025 0.000 4295 0.031 0.000 -0.006
LAFEE 202 14.612 14.631 4295 14.724 14.650 -0.112
AFEE (In millions) 202 3.773 2.259 4295 4.535 2.303 -0.762*
ACCRLAG 152 -0.070 -0.057 3516 -0.058 -0.046 -0.012*
ABSACCRLAG 152 0.081 0.060 3516 0.069 0.051 0.012**
ETHNTEAM 188 0.137 0.000 3978 0.064 0.000 0.073***
ETHNAC 188 0.213 0.000 3978 0.196 0.000 0.016
FEMALEAP 188 0.255 0.000 3978 0.152 0.000 0.103***
FEMALECEO 188 0.074 0.000 3978 0.052 0.000 0.023
FEMALECFO 188 0.181 0.000 3978 0.110 0.000 0.071***
SIZE 188 8.079 8.161 3978 8.293 8.191 -0.214
LEV 188 0.414 0.457 3978 0.458 0.500 -0.043**
BM 188 0.401 0.345 3978 0.461 0.403 -0.059
AGE 188 29.064 25.000 3978 31.728 27.000 -2.664*
OPINSD 188 0.042 0.023 3978 0.039 0.018 0.003
LOSS 152 0.191 0.000 3516 0.193 0.000 -0.002
BSEGMENT 188 2.707 1.000 3978 2.765 2.000 -0.058
GSEGMENT 188 2.415 1.000 3978 2.756 2.000 -0.342*
FOREIGN 188 0.019 0.000 3978 0.021 0.002 -0.002
DIV 188 0.521 1.000 3978 0.653 1.000 -0.132***
BIG4OFC 188 0.840 1.000 3978 0.872 1.000 -0.031
OFCSIZE 188 11.101 11.011 3978 11.634 12.022 -0.534***
OFCDIVERSE 188 0.409 0.333 3978 0.197 0.192 0.212***

Panel C: Audit Quality Proxies: Earnings Persistence and Predictive Value of Earnings
for Future Cash Flows
(1) (2)
VARIABLES ROALEAD OCFLEAD
ROA 0.669*** 0.805***
(0.002) (0.000)
ROA×ETHNAP 0.436* 0.405***
(0.061) (0.010)
ETHNAP -0.022* -0.012
(0.090) (0.222)
ETHNTEAM -0.022 -0.016
(0.203) (0.241)
ETHNAC 0.004 0.000
(0.423) (0.930)
FEMALEAP -0.014** -0.013**
(0.035) (0.027)
FEMALECEO 0.005 0.011*
(0.501) (0.083)
FEMALECFO 0.010 0.011**
(0.290) (0.041)
SIZE 0.001 0.001
(0.735) (0.720)
LEV -0.023*** 0.015*
(0.002) (0.089)
BM -0.024*** -0.006
(0.002) (0.124)
AGE 0.000 -0.000
(0.229) (0.771)
OPINSD -0.040 0.080***
(0.456) (0.002)
BSEGMENT 0.002 0.001
(0.104) (0.498)
GSEGMENT -0.000 0.001
(0.806) (0.315)
FOREIGN 0.322*** 0.292***
(0.000) (0.000)
DIV 0.013** 0.001
(0.021) (0.791)
BIG4OFC 0.014* 0.005
(0.058) (0.368)
OFCSIZE -0.001 0.000
(0.616) (0.954)
OFCDIVERSE 0.009 0.006
(0.576) (0.629)
ROA×ETHNTEAM 0.413 0.321
(0.214) (0.183)

54
ROA×ETHNAC -0.058 -0.041

(0.525) (0.641)
ROA×FEMALEAP 0.284** 0.325***
(0.017) (0.004)
ROA×FEMALECEO -0.040 -0.088
(0.670) (0.356)
ROA×FEMALECFO -0.239 -0.234**
(0.159) (0.028)
ROA×SIZE -0.024 -0.046*
(0.521) (0.060)
ROA×LEV 0.114 -0.193
(0.487) (0.119)
ROA×BM 0.065 0.003
(0.159) (0.903)
ROA×AGE -0.006*** -0.003
(0.007) (0.130)
ROA×OPINSD -0.714* -0.589***
(0.067) (0.004)
ROA×BSEGMENT -0.029 -0.035**
(0.296) (0.040)
ROA×GSEGMENT -0.041** -0.026*
(0.023) (0.055)
ROA×FOREIGN 1.052 0.937
(0.603) (0.473)
ROA×DIV 0.045 0.149**
(0.554) (0.022)
ROA×BIG4OFC -0.219* 0.061
(0.073) (0.533)
ROA×OFCSIZE 0.047** 0.018
(0.034) (0.205)
ROA×OFCDIVERSE -0.052 -0.311
(0.859) (0.199)
Constant -0.022 0.041***
(0.480) (0.006)
Industry FE Yes Yes
Year FE Yes Yes
Observations 4,166 4,166
Adj. R-squared 0.399 0.483

55
Panel D: Audit Quality Proxies: Discretionary Accruals, Restatement, and Audit Fees
(1) (2) (3) (4)
VARIABLES DISACCR ABSDISACCR RESTATEMENT LAFEE
ETHNAP -0.016* -0.021*** -0.154 0.067*
(0.064) (0.007) (0.732) (0.068)
ETHNTEAM 0.008 -0.015 -0.120 0.189***
(0.550) (0.143) (0.807) (0.007)
ETHNAC -0.006 -0.000 -0.118 0.037
(0.130) (0.945) (0.578) (0.107)
FEMALEAP -0.002 -0.000 -0.010 0.026
(0.721) (0.959) (0.974) (0.319)
FEMALECEO 0.013* 0.005 -0.973 0.026
(0.074) (0.509) (0.139) (0.519)
FEMALECFO -0.001 -0.002 -0.893** -0.051**
(0.839) (0.548) (0.035) (0.023)
SIZE 0.001 -0.003** 0.116 0.399***
(0.740) (0.017) (0.199) (0.000)
LEV 0.010 0.004 0.022 0.049
(0.246) (0.509) (0.934) (0.231)
BM 0.005 -0.001 0.101 -0.050***
(0.111) (0.687) (0.614) (0.001)
AGE 0.000* -0.000 0.003 0.002***
(0.071) (0.396) (0.620) (0.003)
OPINSD 0.030 0.107*** -2.163 0.244**
(0.377) (0.000) (0.285) (0.020)
LOSS -0.085*** -0.019*** 0.118 0.123***
(0.000) (0.000) (0.557) (0.000)
OCF -0.225*** -0.097*** -0.465 -0.644***
(0.000) (0.000) (0.438) (0.000)
ACCRLAG 0.146***
(0.000)
ABSACCRLAG 0.093***
(0.001)
BSEGMENT 0.001 0.001 -0.052 0.037***
(0.372) (0.121) (0.300) (0.000)
GSEGMENT 0.001 0.000 0.038 0.023***
(0.345) (0.788) (0.107) (0.000)
FOREIGN -0.047 0.117*** 0.587 2.437***
(0.552) (0.002) (0.752) (0.000)
DIV 0.008* 0.001 -0.462* -0.030
(0.093) (0.686) (0.060) (0.201)
BIG4OFC -0.002 -0.003 -0.642** 0.250***
(0.807) (0.611) (0.038) (0.000)
OFCSIZE -0.001 -0.001 -0.004 0.024***
(0.511) (0.269) (0.944) (0.000)
OFCDIVERSE 0.008 0.016 0.593 0.019

56
(0.543) (0.143) (0.532) (0.691)

Constant -0.003 0.170** -5.131*** 10.271***
(0.974) (0.011) (0.000) (0.000)
Industry FE Yes Yes Yes Yes
Year FE Yes Yes Yes Yes
Observations 3,668 3,668 4,497 4,497
Adj. R-squared 0.313 0.271 0.127 0.805
Table 2 presents the results for testing Hypothesis 1. Panel A presents the descriptive statistics for the
variables used in the model. Panel B presents the descriptive statistics separately for ethnic and White
audit partners. Panel C presents the results of a regression of ROALEAD (column 1) and OCFLEAD
(column 2) on ROA×ETHNAP and the control variables. Panel D presents the results of a regression of
DISACCR, ABSDISACCR, RESTATEMENT, and LAFEE on ETHNAP and controls. Results in Panel C
and D are based on equal weights to each observation. ETHNAP equals 1 if the auditor partner belongs to
one of the following ethnic groups: Asian, Black, and Hispanic, and 0 otherwise. ROALEAD is earnings
before extraordinary items in year t+1, scaled by total assets. OCFLEAD is the cash flow from operations
in year t+1, scaled by total assets. DISACCR and ABS DISACCR are the signed and unsigned
discretionary accruals, respectively, derived from the modified Jones model. RESTATEMENT is an
indicator variable that equals 1 if there is an accounting misstatement during the year, and 0 otherwise.
LAFEE is the natural logarithm of audit fees. See Appendix B for definitions of the other variables. *, **,
and *** indicate statistical significance at the 0.01, 0.05, and 0.10 levels, respectively. Standard errors are
clustered at the client-level.

57
Table 3 Audit partner ethnicity and audit quality: Entropy balanced-weighted sample and
instrumental variable approach
Panel A: Models (1) and (2) – Entropy balanced-weighted sample

(1) (2)
VARIABLES ROALEAD OCFLEAD
ROA 0.662* 1.326***
(0.081) (0.000)
ROA×ETHNAP 0.288** 0.296**
(0.016) (0.017)
ETHNAP -0.034*** -0.020**
(0.001) (0.023)
ETHNTEAM -0.003 -0.002
(0.896) (0.900)
ETHNAC 0.021 0.000
(0.251) (0.986)
FEMALEAP -0.034*** -0.030**
(0.003) (0.013)
FEMALECEO 0.018 0.002
(0.456) (0.906)
FEMALECFO 0.052*** 0.028*
(0.001) (0.083)
SIZE 0.005 0.006*
(0.178) (0.090)
LEV 0.014 0.090***
(0.419) (0.000)
BM 0.003 0.005
(0.770) (0.399)
AGE 0.001* 0.001***
(0.054) (0.003)
OPINSD -0.167 -0.025
(0.204) (0.825)
BSEGMENT 0.001 -0.007**
(0.781) (0.014)
GSEGMENT 0.005 0.005
(0.173) (0.143)
FOREIGN -0.061 -0.060
(0.775) (0.764)
DIV -0.038*** -0.037***
(0.005) (0.001)
BIG4OFC 0.040** 0.035**
(0.050) (0.020)
OFCSIZE -0.003 -0.004
(0.380) (0.274)
OFCDIVERSE -0.032 -0.018
(0.231) (0.461)

58
ROA×ETHNTEAM 0.116 -0.370

(0.731) (0.247)
ROA×ETHNAC -0.105 -0.041
(0.636) (0.851)
ROA×FEMALEAP 0.913*** 0.671***
(0.000) (0.000)
ROA×FEMALECEO -0.203 -0.005
(0.386) (0.979)
ROA×FEMALECFO -0.999*** -0.618***
(0.000) (0.009)
ROA×SIZE -0.023 -0.072*
(0.566) (0.071)
ROA×LEV -0.488** -1.089***
(0.033) (0.000)
ROA×BM 0.084 -0.277***
(0.283) (0.001)
ROA×AGE -0.013** -0.015***
(0.015) (0.002)
ROA×OPINSD 0.104 -1.155***
(0.815) (0.009)
ROA×BSEGMENT -0.065 0.035
(0.121) (0.383)
ROA×GSEGMENT -0.055* -0.031
(0.088) (0.287)
ROA×FOREIGN 0.890 2.206*
(0.470) (0.081)
ROA×DIV 0.800*** 0.564***
(0.000) (0.000)
ROA×BIG4OFC -0.223 -0.127
(0.381) (0.504)
ROA×OFCSIZE 0.053 0.052
(0.191) (0.156)
ROA×OFCDIVERSE -0.085 -0.499
(0.831) (0.127)
Constant -0.078** -0.021
(0.031) (0.559)
Industry FE Yes Yes
Year FE Yes Yes
Adj. R-squared 0.756 0.748

59
Panel B: Model (3) – Entropy balanced-weighted sample

(1) (2) (3) (4)
VARIABLES DISACCR ABSDISACCR RESTATEMENT LAFEE
ETHNAP -0.016** -0.017*** 0.270 0.070***
(0.038) (0.002) (0.638) (0.007)
ETHNTEAM 0.021 -0.003 -2.467* 0.192***
(0.288) (0.833) (0.067) (0.002)
ETHNAC -0.018 -0.001 0.204 0.107***
(0.118) (0.914) (0.679) (0.001)
FEMALEAP -0.020** -0.019*** 0.414 0.005
(0.011) (0.001) (0.255) (0.861)
FEMALECEO 0.018* 0.013* -1.671** -0.045
(0.052) (0.096) (0.029) (0.341)
FEMALECFO -0.002 -0.002 -1.122** -0.141***
(0.852) (0.695) (0.035) (0.000)
SIZE -0.000 -0.003* 0.198* 0.387***
(0.931) (0.092) (0.084) (0.000)
LEV -0.001 -0.017 -0.294 -0.071
(0.966) (0.139) (0.658) (0.164)
BM 0.008** -0.006** 0.872* -0.037***
(0.023) (0.024) (0.070) (0.000)
AGE 0.000 -0.000 0.014 0.001
(0.661) (0.260) (0.271) (0.131)
OPINSD -0.042 0.092*** -2.214 0.065
(0.450) (0.002) (0.297) (0.491)
LOSS -0.088*** -0.021* 0.111 0.102***
(0.000) (0.059) (0.796) (0.007)
OCF -0.233*** -0.065** -1.244 -0.450***
(0.000) (0.045) (0.217) (0.000)
ACCRLAG 0.027
(0.646)
ABSACCRLAG 0.084
(0.118)
BSEGMENT 0.002 0.002** -0.154** 0.031***
(0.281) (0.014) (0.035) (0.000)
GSEGMENT 0.002 0.001 0.179** 0.015*
(0.270) (0.362) (0.021) (0.069)
FOREIGN -0.063 -0.035 -6.274 2.294***
(0.653) (0.718) (0.176) (0.000)
DIV 0.009 0.009* -1.035** -0.129***
(0.168) (0.060) (0.021) (0.000)
BIG4OFC -0.022 -0.035*** -0.759 0.213***
(0.109) (0.001) (0.178) (0.000)
OFCSIZE 0.004 0.002 -0.102 0.029***
(0.107) (0.256) (0.297) (0.003)
OFCDIVERSE 0.003 -0.009 0.266 0.064

60
(0.887) (0.573) (0.744) (0.364)

Constant 0.079 0.185*** -5.849*** 11.041***
(0.172) (0.001) (0.000) (0.000)
Industry FE Yes Yes Yes Yes
Observations 3,668 3,668 4,497 4,497
Adj./Pseudo R-squared 0.317 0.310 0.245 0.822

61
Panel C: Model (3) – Instrumental variable approach

Probit First-stage Second-stage
(1) (2) (3) (4) (5) (6)
VARIABLES ETHNAP ETHNAP DISACCR ABSDISACCR RESTATEMENT LAFEE
ETHNSTATE 2.492***
(0.000)
ETHNAP _HAT 1.022***
(0.000)
ETHNAP _P -0.044* -0.057*** -2.044 0.502***
(0.093) (0.002) (0.176) (0.000)
ETHNTEAM 0.878*** 0.008 0.022* 0.002 0.268 0.130*
(0.003) (0.822) (0.083) (0.786) (0.616) (0.063)
ETHNAC -0.118 -0.002 -0.006 -0.002 -0.125 0.041*
(0.400) (0.832) (0.123) (0.498) (0.540) (0.080)
FEMALEAP -0.104 -0.000 -0.005 -0.004 -0.024 0.035
(0.554) (0.982) (0.269) (0.305) (0.937) (0.159)
FEMALECEO 0.122 -0.001 0.005 -0.003 -0.975 0.021
(0.612) (0.952) (0.385) (0.584) (0.144) (0.613)
FEMALECFO 0.270 0.003 0.000 -0.002 -0.858** -0.063***
(0.101) (0.848) (0.968) (0.637) (0.044) (0.007)
SIZE -0.015 0.000 -0.004*** -0.004*** 0.118 0.399***
(0.735) (0.981) (0.004) (0.000) (0.181) (0.000)
LEV -0.473* 0.003 0.011 0.013** -0.015 0.067
(0.099) (0.899) (0.103) (0.010) (0.956) (0.104)
BM -0.134*** 0.001 0.000 -0.003** 0.078 -0.045***
(0.005) (0.813) (0.954) (0.017) (0.703) (0.002)
AGE 0.001 0.000 0.000** -0.000 0.003 0.002***
(0.760) (0.782) (0.014) (0.951) (0.618) (0.003)
OPINSD 0.375 -0.000 0.017 0.050*** -1.891 0.231**
(0.489) (0.993) (0.494) (0.001) (0.330) (0.028)
LOSS -0.249* -0.001 -0.069*** -0.016*** 0.126 0.129***
(0.081) (0.945) (0.000) (0.000) (0.584) (0.000)
OCF -0.117 -0.014 -0.131*** -0.045*** 0.008 -0.631***

62
(0.784) (0.792) (0.000) (0.002) (0.994) (0.000)

ACCRLAG -0.508 -0.002 0.083***
(0.446) (0.968) (0.001)
ABSACCRLAG 0.032*
(0.074)
BSEGMENT 0.042 0.000 0.002* 0.002*** -0.048 0.036***
(0.290) (0.873) (0.066) (0.009) (0.337) (0.000)
GSEGMENT -0.006 -0.001 0.001 0.000 0.040* 0.024***
(0.844) (0.774) (0.123) (0.546) (0.089) (0.000)
FOREIGN -0.401 0.009 0.023 0.074*** -0.655 2.430***
(0.837) (0.941) (0.701) (0.002) (0.611) (0.000)
DIV -0.200 -0.004 -0.000 -0.003 -0.483** -0.020
(0.225) (0.730) (0.933) (0.255) (0.042) (0.408)
BIG4OFC 0.248 0.005 0.005 -0.000 -0.591** 0.238***
(0.239) (0.733) (0.438) (0.925) (0.044) (0.000)
OFCSIZE -0.015 -0.001 -0.001 -0.001 -0.026 0.029***
(0.709) (0.845) (0.298) (0.427) (0.656) (0.000)
OFCDIVERSE 2.891*** -0.014 0.011 0.025*** 1.176 -0.128**
(0.000) (0.716) (0.414) (0.008) (0.310) (0.040)
Constant -8.758*** 0.005 0.008 0.086*** -5.024*** 10.261***
(0.000) (0.855) (0.790) (0.000) (0.000) (0.000)
Industry FE Yes Yes Yes Yes Yes Yes
Year FE Yes Yes Yes Yes Yes Yes
Observations 3,668 3,668 3,668 3,668 4,497 4,497
Pseudo/Adj. R-squared 0.305 0.199 0.268 0.245 0.129 0.805
Table 3 presents the results of testing Hypothesis 1 using Entropy balanced-weighted sample (Panels A and B) and instrumental variable approach
(panel C). Panel A presents the results of a regression of ROALEAD (column 1) and OCFLEAD (column 2) on ROA×ETHNAP and the control
variables based on entropy balance weighting. ROALEAD is earnings before extraordinary items in year t+1, scaled by total assets. OCFLEAD is
the cash flow from operations in year t+1, scaled by total assets. Panel B presents the results of a regression of DISACCR, ABSDISACCR,
RESTATEMENT, and LAFEE, on ETHNAP and controls using entropy balancing. In Panel C, we repeat the tests with the same dependent
variables as in Panel B using a three-step 2SLS with the state-level proportionate rate of ethnic minorities in the population (ETHNSTATE) being
the instrumental variable. DISACCR and ABS DISACCR are the signed and unsigned discretionary accruals, respectively, derived from the
modified Jones model. RESTATEMENT is an indicator variable that equals 1 if there is an accounting misstatement during the year, and 0
otherwise. LAFEE is the natural logarithm of audit fees. ETHNAP equals 1 if the audit partner belongs to one of the following ethnic groups:

63
Asian, Black, and Hispanic, and 0 otherwise. See Appendix B for definitions of the other variables. When estimating column (4), ABSACCRLAG
is included. When estimating column (5), ACCRLAG and ABSACCRLAG are not included. *, **, and *** indicate, statistical significance at the
0.01, 0.05, and 0.10 levels, respectively. Standard errors are clustered at the client-level.

64
Table 4 Audit partner ethnicity and characteristics of their audit offices
VARIABLES N Mean Median S.D. P25 P75
BIG4OFC 9,742 0.636 1.000 0.481 0.000 1.000
PRESTIGEOFC 9,742 0.529 1.000 0.499 0.000 1.000
OFCSIZE 9,742 10.360 11.199 3.316 8.383 12.761
LAVEFEE 8,750 14.214 14.662 1.409 13.171 15.377
ETHNAP 9,742 0.060 0.000 0.237 0.000 0.000
FEMALEAP 9,742 0.155 0.000 0.362 0.000 0.000
PARTNERAGE 9,742 47.395 47.000 6.899 42.000 52.000
LFOLLOW 9,742 6.473 6.590 0.936 6.140 6.981
TRAVEL 9,742 1.261 1.000 0.521 1.000 1.000
FORGNSCHL 9,742 0.068 0.000 0.252 0.000 0.000
Panel B: Descriptive statistics – Ethnic minority audit partners vs. White audit partners
ETHNAP=1 ETHNAP=0
VARIABLES N Mean Median N Mean Median Difference (Mean)
BIG4OFC 583 0.465 0.000 9,159 0.647 1.000 -0.182***
PRESTIGEOFC 583 0.326 0.000 9,159 0.542 0.000 -0.216***
OFCSIZE 583 8.849 9.384 9,159 10.456 11.312 -1.607***
LAVEFEE 520 13.764 14.109 8,230 14.242 14.722 -0.478***
FEMALEAP 583 0.178 0.000 9,159 0.154 0.000 0.025
PARTNERAGE 583 45.463 45.000 9,159 47.518 47.000 -2.055***
LFOLLOW 583 6.639 6.730 9,159 6.462 6.588 0.177***
TRAVEL 583 1.166 1.000 9,159 1.267 1.000 -0.101***
FORGNSCHL 583 0.233 0.000 9,159 0.058 0.000 0.176***

65
Panel C: Results of multivariate regressions
(1) (2) (3) (4)

VARIABLES BIG4OFC PRESTIGEOFC OFCSIZE LAVEFEE
ETHNAP -0.663*** -0.652** -0.530*** -0.122**
(0.002) (0.035) (0.001) (0.025)
FEMALEAP 0.347*** 0.115 0.005 -0.026
(0.009) (0.530) (0.955) (0.450)
PARTNERAGE 0.005 0.022** -0.002 -0.002
(0.439) (0.024) (0.684) (0.251)
LFOLLOW -0.033 0.082 0.086** 0.060***
(0.487) (0.142) (0.010) (0.000)
TRAVEL 0.282*** 0.420*** 0.344*** 0.116***
(0.006) (0.004) (0.000) (0.000)
BIG4OFC 6.251*** 5.091*** 1.984***
(0.000) (0.000) (0.000)
FORGNSCHL -0.332 0.185 -0.128 0.007
(0.431) (0.795) (0.648) (0.948)
Constant -1.696 -4.924*** 0.962*** 9.982***
(0.187) (0.000) (0.002) (0.000)
State FE Yes Yes Yes Yes
UNIVERSITY FE Yes Yes Yes Yes
Observations 9,742 9,742 9,742 8,750
Pseudo/Adj. R-squared 0.092 0.595 0.720 0.746
Table 4 presents the results for testing Hypothesis 2. Panel A presents the descriptive statistics for the variables in models (4) through (7). Panel B
presents the descriptive statistics separately for the observations for ethnic minority audit partners and White audit partners. Panel C presents the
multivariate results of Hypothesis 2. ETHNAP equals 1 if the audit partner belongs to one of the following ethnic groups: Asian, Black, and
Hispanic, and 0 otherwise. BIG4OFC equals 1 if the office is a Big 4 audit firm, and 0 otherwise. PRESTIGEOFC equals 1 if the office has at least
one prestigious client, and 0 otherwise. OFCSIZE is the natural logarithm of total assets of the clients of the audit office. LAVEFEE is the natural
logarithm of the average audit fees per partner. See Appendix B for definitions of the other variables. *, **, and *** indicate statistical
significance at the 0.01, 0.05, and 0.10 levels, respectively. Standard errors are clustered at the partner-level.

66
Table 5 Audit partner ethnicity and partner-client association
variable N Mean Median S.D. P25 P75
ETHNAP 4,497 0.045 0.000 0.207 0.000 0.000
ETHNEXE 4,497 0.250 0.000 0.433 0.000 1.000
ETHNTEAM 4,497 0.068 0.000 0.139 0.000 0.091
ETHNCEO 4,497 0.062 0.000 0.240 0.000 0.000
ETHNCFO 4,497 0.067 0.000 0.250 0.000 0.000
ETHNAC 4,497 0.198 0.000 0.399 0.000 0.000
IMPORTANT 4,497 0.314 0.000 0.464 0.000 1.000
PRESTIGE 4,497 0.166 0.000 0.372 0.000 0.000
FEMALECEO 4,497 0.054 0.000 0.226 0.000 0.000
FEMALECFO 4,497 0.113 0.000 0.316 0.000 0.000
SIZE 4,497 8.246 8.152 1.794 7.041 9.341
LEV 4,497 0.458 0.504 0.280 0.217 0.667
LOSS 4,497 0.169 0.000 0.375 0.000 0.000
OCF 4,497 0.079 0.079 0.090 0.042 0.124
BM 4,497 0.454 0.403 0.806 0.208 0.661
AGE 4,497 31.614 27.000 18.732 18.000 45.000
OPINSD 4,497 0.040 0.019 0.087 0.009 0.037
BSEGMENT 4,497 2.712 2.000 2.001 1.000 4.000
GSEGMENT 4,497 2.692 2.000 2.496 1.000 4.000
FOREIGN 4,497 0.019 0.002 0.033 0.000 0.025
BIG4OFC 4,497 0.869 1.000 0.337 1.000 1.000
OFCSIZE 4,497 11.598 11.975 2.016 10.404 12.936
CALIFORNIA 4,497 0.145 0.000 0.352 0.000 0.000
ETHNSTATE 4,497 0.374 0.367 0.147 0.239 0.470

67
Panel B: Descriptive statistics for the variables used for testing Hypothesis 3 – Clients audited by ethnic vs. White audit partners
Clients of ethnic partners Clients of White partners
Mean difference
ETHNAP=1 ETHNAP=0
variable N Mean Median N Mean Median
ETHNEXE 202 0.381 0.000 4,295 0.244 0.000 0.137***
ETHNTEAM 202 0.139 0.000 4,295 0.064 0.000 0.075***
ETHNCEO 202 0.173 0.000 4,295 0.056 0.000 0.117***
ETHNCFO 202 0.134 0.000 4,295 0.064 0.000 0.070***
ETHNAC 202 0.208 0.000 4,295 0.198 0.000 0.010
IMPORTANT 202 0.406 0.000 4,295 0.310 0.000 0.096**
PRESTIGE 202 0.134 0.000 4,295 0.167 0.000 -0.033*
FEMALECEO 202 0.074 0.000 4,295 0.053 0.000 0.021
FEMALECFO 202 0.168 0.000 4,295 0.110 0.000 0.058**
SIZE 202 8.004 8.073 4,295 8.257 8.153 -0.253**
LEV 202 0.415 0.457 4,295 0.460 0.505 -0.045**
LOSS 202 0.149 0.000 4,295 0.170 0.000 -0.021
OCF 202 0.074 0.087 4,295 0.079 0.078 -0.006
BM 202 0.360 0.345 4,295 0.458 0.405 -0.098
AGE 202 28.866 25.000 4,295 31.743 27.000 -2.876**
OPINSD 202 0.047 0.024 4,295 0.039 0.018 0.008
BSEGMENT 202 2.668 1.000 4,295 2.714 2.000 -0.046
GSEGMENT 202 2.391 1.000 4,295 2.706 2.000 -0.315*
FOREIGN 202 0.017 0.000 4,295 0.019 0.002 -0.002
BIG4OFC 202 0.827 1.000 4,295 0.871 1.000 -0.044*
OFCSIZE 202 11.081 11.011 4,295 11.622 11.978 -0.541***
CALIFORNIA 202 0.416 0.000 4,295 0.132 0.000 0.283***
ETHNSTATE 202 0.478 0.562 4,295 0.369 0.367 0.109***

68
Panel C: Results of multivariate regressions
(1) (2) (3) (4) (5) (6)

VARIABLES ETHNAP ETHNAP ETHNAP ETHNAP ETHNAP ETHNAP
ETHNEXE 0.633*** 0.627**
(0.010) (0.011)
ETHNTEAM 2.514*** 2.648***
(0.001) (0.000)
ETHNCEO 1.081*** 1.105***
(0.001) (0.001)
ETHNCFO 0.458 0.371
(0.219) (0.355)
ETHNAC -0.096 -0.273 -0.164 0.054 -0.152 -0.030
(0.756) (0.379) (0.588) (0.863) (0.624) (0.923)
IMPORTANT 0.415 0.323 0.449 0.531 0.455 0.530
(0.301) (0.440) (0.279) (0.211) (0.302) (0.233)
PRESTIGE -0.363 -0.342 -0.156 -0.499 -0.473 -0.196
(0.416) (0.436) (0.736) (0.277) (0.306) (0.685)
FEMALECEO 0.227 0.235 0.258 0.246 0.272 0.271
(0.670) (0.658) (0.616) (0.661) (0.626) (0.611)
FEMALECFO 0.649* 0.642* 0.591 0.594 0.565 0.515
(0.060) (0.066) (0.107) (0.109) (0.136) (0.197)
SIZE -0.057 -0.039 -0.095 -0.055 -0.041 -0.108
(0.624) (0.744) (0.466) (0.635) (0.734) (0.413)
LEV -0.489 -0.472 -0.665 -0.504 -0.420 -0.680
(0.292) (0.316) (0.247) (0.313) (0.403) (0.256)
LOSS -0.450 -0.483* -0.456 -0.391 -0.413 -0.344
(0.105) (0.085) (0.120) (0.146) (0.130) (0.241)
OCF -0.413 -0.352 -0.182 1.213 1.351 1.576
(0.726) (0.766) (0.874) (0.512) (0.494) (0.479)
BM -0.191* -0.198** -0.225* -0.194* -0.205* -0.223*
(0.063) (0.049) (0.054) (0.096) (0.067) (0.089)
OPINSD 0.329 0.277 0.436 -0.687 -0.761 -0.523

69
(0.745) (0.790) (0.671) (0.582) (0.556) (0.682)

BSEGMENT 0.092 0.095 0.089 0.080 0.086 0.076
(0.221) (0.210) (0.248) (0.280) (0.251) (0.304)
GSEGMENT -0.017 -0.014 -0.002 -0.022 -0.024 -0.004
(0.771) (0.815) (0.974) (0.722) (0.704) (0.948)
FOREIGN -2.409 -3.923 -3.212 -7.429 -8.773 -7.073
(0.638) (0.463) (0.513) (0.239) (0.176) (0.240)
BIG4OFC 0.595 0.612 0.621 -0.445 -0.726 -0.573
(0.114) (0.101) (0.105) (0.687) (0.506) (0.611)
OFCSIZE -0.114 -0.122 -0.091 -0.102 -0.104 -0.086
(0.331) (0.310) (0.434) (0.385) (0.388) (0.480)
CALIFORNIA 0.716** 0.690* 0.695* 0.649* 0.609 0.613
(0.049) (0.062) (0.065) (0.088) (0.115) (0.133)
ETHNSTATE 3.907*** 4.047*** 3.996*** 4.469*** 4.664*** 4.604***
(0.003) (0.002) (0.002) (0.001) (0.000) (0.001)
Constant -5.011*** -5.212*** -4.098** -2.712 -2.802 -1.422
(0.001) (0.001) (0.027) (0.127) (0.123) (0.489)
Industry FE Yes Yes Yes Yes Yes Yes
Year FE Yes Yes Yes Yes Yes Yes
Audit firm FE No No No Yes Yes Yes
Observations 4,497 4,497 4,497 4,497 4,497 4,497
Pseudo R2 0.138 0.149 0.157 0.178 0.190 0.198
ROC 0.806 0.815 0.834 0.795 0.803 0.819
Table 5 presents the results for testing Hypothesis 3. Panel A presents the descriptive statistics for the variables in model (8). Panel B presents the
descriptive statistics separately for the observations of ethnic minority audit partners and White audit partners. Panel C presents the multivariate
results of Hypothesis 3. Columns 1-3 do not include audit-firm fixed effects, while columns 4-6 do. ETHNAP equals 1 if the auditor partner
belongs to one of the following ethnic groups: Asian, Black, and Hispanic, and 0 otherwise. ETHNEXE equals 1 if the client company has at least
one ethnic minority top executive, and 0 otherwise. ETHNTEAM is the proportion of ethnic minority managers on the executive team. ETHNCEO,
ETHNCFO, ETHNAC are indicator variables that are equal to 1 if the CEO, the CFO, or at least one member of the audit committee are of ethnic
minority group, respectively, and to 0 otherwise. See Appendix B for variable definitions. *, **, and *** indicate statistical significance at the 0.01,
0.05, and 0.10 levels, respectively. Standard errors are clustered at the firm-level.

70
Table 6 Audit partner ethnicity and the likelihood of partner turnover after earnings restatements
(1) (2) (3)

VARIABLES RESTATETO RESTATETO RESTATETO
ETHNAP 1.506** 1.475* 1.752**
(0.018) (0.059) (0.038)
FEMALEAP 0.605 0.633 0.222
(0.126) (0.161) (0.669)
PARTNERAGE 0.107*** 0.139*** 0.179***
(0.000) (0.000) (0.000)
LFOLLOW 0.073 0.039 0.079
(0.611) (0.807) (0.640)
FORGNSCHL -0.647 -0.438 -0.582
(0.430) (0.638) (0.513)
BIG4OFC -0.428 -0.585 -1.163
(0.346) (0.251) (0.220)
TENURE -0.031 -0.001 -0.039
(0.855) (0.996) (0.871)
CAR -2.378** -3.022** -2.880*
(0.044) (0.045) (0.081)
ICW -0.113 -0.647* -1.010**
(0.733) (0.082) (0.013)
GC 0.438 0.099 -0.048
(0.463) (0.887) (0.961)
SIZE 0.097 0.193 0.201
(0.444) (0.153) (0.229)
LEV -0.554 -0.773 -0.446
(0.397) (0.292) (0.562)
BM -0.398* -0.357 -0.845**
(0.077) (0.121) (0.024)
AGE -0.012 -0.006 -0.007
(0.219) (0.627) (0.598)
LOSS -0.092 0.101 0.114
(0.796) (0.787) (0.788)
OCF 0.737 0.216 -0.164
(0.376) (0.785) (0.856)
OPINSD 0.872 1.216 1.334
(0.378) (0.244) (0.195)
BSEGMENT 0.122* 0.016 0.027
(0.094) (0.830) (0.737)
GSEGMENT 0.023 0.040 0.044
(0.424) (0.196) (0.254)
FOREIGN -2.042 -1.001 -0.713
(0.156) (0.532) (0.797)
OFCSIZE -0.056 -0.053 -0.236**
(0.426) (0.503) (0.011)

71
Constant -6.849*** -9.516*** -3.944

(0.001) (0.000) (0.130)
Industry FE Yes Yes Yes
Year FE Yes Yes Yes
Auditor FE No No Yes
Observations 448 421 421
Pseudo R2 0.222 0.266 0.363
ROC 0.783 0.808 0.852
Table 6 presents the results of testing for a difference in auditor turnover after a restatement between
ethnic audit partner and White partner by regressing RESTATETO on ETHNAP and controls. Column 1
reports the results that consider all audit partner changes, while column 2 reports the results after
excluding audit partner changes involving an audit firm change. Column 3 excludes audit partner changes
and includes audit-firm fixed effects. ESTATETO equals 1 if there is a change of audit partner within the
two years following the restatement announcement, and 0 otherwise. ETHNAP equals 1 if the auditor
partner belongs to one of the following ethnic groups: Asian, Black, and Hispanic, and 0 otherwise. See
Appendix B for definitions of the other variables. *, **, and *** indicate statistical significance at the
0.01, 0.05, and 0.10 levels, respectively. Standard errors are clustered at the client-level.

72
Table 7 Audit partner ethnicity and audit partner-client association – A finer examination
Panel A: Distribution of ethnic minorities

Asian Hispanic Black
Audit Partner 1.6% 2.6% 0.3%
Client 14.3% 11.8% 1.4%
Panel B: Multivariate results

(1) (2)
VARIABLES APASIAN APHISP
ASIANEXE 0.654* -0.003
(0.076) (0.993)
HISPEXE 0.328 1.309***
(0.496) (0.001)
ETHNAC 0.084 -0.074
(0.848) (0.861)
IMPORTANT -0.287 0.647
(0.694) (0.255)
PRESTIGE 0.034 -0.334
(0.956) (0.575)
FEMALECEO -0.287 0.405
(0.693) (0.519)
FEMALECFO 0.970* 0.295
(0.055) (0.524)
SIZE 0.029 -0.065
(0.860) (0.685)
LEV -1.580** -0.192
(0.029) (0.752)
LOSS -0.099 -0.698*
(0.795) (0.075)
OCF -1.736 2.485
(0.206) (0.485)
BM -0.322* -0.073
(0.052) (0.431)
OPINSD 0.449 -0.202
(0.804) (0.851)
BSEGMENT -0.030 0.041
(0.833) (0.618)
(0.881) (0.806)
FOREIGN -3.396 -8.002
(0.575) (0.382)
BIG4OFC -0.806 1.039**
(0.164) (0.027)
OFCSIZE 0.137 -0.170

73
(0.430) (0.299)
CALIFORNIA 1.314* 0.375
(0.054) (0.418)
ETHNSTATE 2.402 3.285*
(0.234) (0.051)
Constant -5.957*** -4.361**
(0.005) (0.029)
Industry FE Yes Yes
Year FE Yes Yes
Pseudo R2 0.186 0.126
ROC 0.870 0.823
Table 7 presents the results of a within-ethnicity audit partner-client association. Panel A presents the
distribution of the individual ethnicities within the group of ethnic minorities for audit partners and client
senior executives. Panel B presents results of a regression of APASIAN (column 1) and APHISP (column
2) on ASIANEXE and HISPEXE and controls. APASIAN equals 1 if the audit partner is Asian, and 0
otherwise. APHISP equals 1 if the audit partner is Hispanic, and 0 otherwise. ASIANEXE equals 1 if there
is Asian representation on the top management team, and 0 otherwise. HISPEXE equals 1 if there is
Hispanic representation on the top management team, and 0 otherwise. See Appendix B for definitions of
the other variables. *, **, and *** indicate statistical significance at the 0.01, 0.05, and 0.10 levels,
respectively. Standard errors are clustered at the client-level.

74
Table 8 Alternative proxies for audit quality: SEC comment letters
(1) (2)
VARIABLES COMLETR NCOMLETR
ETHNAP -0.157*** -0.024*
(0.005) (0.077)
ETHNTEAM 0.194 0.030
(0.252) (0.275)
ETHNAC 0.093 0.003
(0.198) (0.712)
FEMALEAP -0.097 -0.005
(0.466) (0.601)
FEMALECEO -0.605*** -0.025**
(0.005) (0.034)
FEMALECFO 0.013 0.013
(0.958) (0.334)
SIZE 0.175*** 0.014***
(0.000) (0.000)
LEV -0.052 -0.003
(0.745) (0.852)
BM -0.014 0.000
(0.799) (0.953)
AGE -0.001 -0.000
(0.432) (0.569)
OPINSD 0.230 0.023
(0.781) (0.552)
LOSS 0.448* 0.023*
(0.061) (0.055)
OCF 1.602*** 0.024
(0.001) (0.538)
BSEGMENT 0.024 0.001
(0.341) (0.797)
(0.212) (0.193)
FOREIGN 0.482 -0.035
(0.736) (0.799)
DIV -0.303* -0.025***
(0.057) (0.007)
BIG4OFC 0.126 -0.008
(0.314) (0.567)
OFCSIZE -0.049** -0.006**
(0.030) (0.017)
OFCDIVERSE -0.083 0.031
(0.575) (0.237)
Constant -4.325*** 0.274
(0.000) (0.463)

75
Industry FE Yes Yes

Year FE Yes Yes
Pseudo R2/R2 0.081 0.065
Table 8 presents the results for the association of ethnic audit partner with the receipt of an SEC comment
letter and with the number of accounting-related issues in the letter by regressing COMLETR (column 1)
and NCOMLETR (column 2) on ETHNAP and controls. COMLETR equals 1 if the company received an
accounting-related comment letter based on the review of the current fiscal year financial statements, and
0 otherwise. NCOMLETR is the number of accounting-related issues mentioned in the comment letter. It
equals 0 if the company did not receive a comment letter or the letter did not mention accounting-related
issues. ETHNAP equals 1 if the auditor partner belongs to one of the following ethnic groups: Asian,
Black, and Hispanic, and 0 otherwise. See Appendix B for definitions of the other variables. *, **, and
*** indicate statistical significance at the 0.01, 0.05, and 0.10 levels, respectively. Standard errors are
clustered at the client-level.

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Audit Partner Ethnicity and Salient Audit Phenomena

December 17, 2022

Electronic copy available at: https://ssrn.com/abstract=3647321

Audit Partner Ethnicity and Salient Audit Phenomena

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The underrepresentation of and workplace discrimination against ethnic minorities are

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profession’s talent pipeline.

partners and top executives and in audit committees.

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by examining within-ethnicity audit partner–client alignment. In further support of the homophily

findings are unlikely to be driven by self-selection alone.

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concluding remarks, and avenues for future research.

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legal infractions) provide lower-quality audits.

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3. Theory and hypotheses

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H1: APE is not related to audit quality.

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these reasons, we expect an underrepresentation of ethnic minorities among partners.

the null form, as follows.

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client–audit partner association.

regard to their next engagement partner. 11 11F

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audit partner in charge of the engagement.

representation and EMAPs to work together.

the engagement to achieve greater legitimacy with the client.

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H3a: Ethnic representation in the client’s top management or audit committee is

following hypothesis in the null form.

H3b: APE is not related to client importance or prestige.

we use to test our hypotheses.

4.1 Determining the ethnicity of key players

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ethnicities of senior managers and audit committee members.

4.2 Validation of Namsor’s ethnicity classification

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4.3 APE and audit quality

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provide a different audit quality from that of White partners. 1717F

ROALEAD = ß0 + ß1ROA + ß2ROA×ETHNAP + ß3ETHNAP + ß4-20CONTROLS +

OCFLEAD = ß0 + ß1ROA + ß2ROA×ETHNAP + ß3ETHNAP + ß4-20CONTROLS +

the effect of the individual audit partner on audit quality.

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ABSDISACCR/DISACCR/RESTATEMENT/LAFEE = ß0 + ß1ETHNAP + ß2ETHNTEAM +

include the prior year’s absolute total accruals (ABSACCRLAG).

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4.4. APE and the work environment

following models using partner-level data:

BIG4OFC = ß0 + ß1ETHNAP + ß2FEMALEAP+ ß3PARTNERAGE + ß4LFOLLOW + ß5TRAVEL

PRESTIGEOFC = ß0 + ß1ETHNAP + ß2FEMALEAP + ß3PARTNERAGE + ß4LFOLLOW + ß5TRAVEL

OFCSIZE = ß0 + ß1ETHNAP + ß2FEMALEAP + ß3PARTNERAGE + ß4LFOLLOW + ß5TRAVEL

LAVEFEE = ß0 + ß1ETHNAP + ß2FEMALEAP + ß3PARTNERAGE + ß4LFOLLOW + ß5TRAVEL

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audit partner level.

4.5 APE and partner–client association

estimate the following logit model:

ETHNAP = ß0 + ß1ETHNEXE/ETHNTEAM/ETHNCEO, ETHNCFO + ß2ETHNAC+ ß3IMPORTANT +

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