An Empirical Investigation of the Impact of Audit Firm Reputation on Investor Confidence and Trust

Posted: Jun 25, 2023

• Serena Greene
• Adrian Wells
• Phoebe Parker

Abstract

The relationship between audit firm reputation and investor confidence represents a fundamental concern in financial markets, yet traditional approaches to measuring this relationship have relied heavily on survey methodologies and simplified proxy variables. This research introduces a novel computational framework that leverages natural language processing and machine learning techniques to develop a more nuanced understanding of how audit firm reputation influences investor trust. The accounting literature has long recognized the importance of auditor reputation, but existing studies typically employ straightforward measures such as audit firm size or binary indicators of regulatory violations. Our approach represents a significant departure from these conventional methods by constructing a multi-dimensional reputation score derived from comprehensive textual analysis of financial discourse.