Abstract:This study investigates the reputation-based interplay between auditor selection and interlocking directorships from a multilevel network perspective. The aim of this article is to explore how and under what conditions reputation influences patterns of social selection processes in an assurance service context. To empirically determine the impact of reputation on establishing relational ties, this study applies exponential random graph models (ERGMs) for multilevel networks. The case study was carried out in the Danish field of mandatory audits, and findings here make a valuable contribution to the literature on auditor selection. A total of 774 annual reports were collected from 145 -165 Danish public listed companies, and the relational data of companies was assembled, as comprised of the members of supervisory boards and partners who signed audit reports during the five-year period from 2010 to 2014. In this study, mechanisms for auditor selection were controlled by mechanisms for interlocking directorships in order to obtain a broader picture of the conditions under which board members have tendencies to select reputable auditors. The findings suggest that reputation has a significant impact on both observed processes, however, results reveal that reputation has a compensatory nature, as it drives both mechanisms of social selection but never simultaneously.

Purpose The purpose of this study is to show that social relations in a corporate governance platform between members of supervisory boards and between members of supervisory and executive board tiers can serve as an alternative viewpoint for understanding mechanisms of social selection in corporate governance networks. The study shows that through the lenses of social network analysis, it is possible to identify and understand how the process of corporate governance member selection unfolds within companies and how that selection process may have been potentially influenced by the cross-board relations, such as interlocking directorships. Design/methodology/approach To estimate network parameters and attribute effects of network tie emergence, this study has used exponential random graph models (ERGMs) on corporate governance data of Danish publicly listed companies. Econometric models are applied to estimate parameter statistics which serve further to explain tendencies of tie emergence. Findings The results of this study reveal that the process of selection of both supervisory boards and executive directors is interdependent. Also, the study showed that board members are more likely to select popular supervisory board members and top managers who have their expertise gained through multiple companies affiliated with multiple industries. However, these conditions for CEO selection apply only to the extent to which they have their experience gained from multiple companies but not multiple industries. Originality/value On one hand, this study demonstrates that being a dynamic practitioner who is exposed to diverse corporate environments by being affiliated with different companies belonging to different industries generally increases practitioners visibility in the corporate governance network, and therefore their attractiveness to boards of directors. On the other hand, the results show that the research on board assemblage, nowadays, should be rather observed through the methodology of social network analysis as the method gives an opportunity to understand structures through relations, from which the executive tier should not be exempted as well.

This article aims to extend methodological possibilities for conducting research in accounting and auditing by providing an overview of how current developments in social network analysis (SNA) could serve as a powerful set of theoretical and methodological tools for this purpose. SNA focuses on structure and implication of network ties existing in particular empirical context. In contrast to classical quantitative methods (e.g. linear regression), SNA has the capacity to enable understanding of the emergence of the observed network by combining actors' attributes and structures of relational ties existing between them. The paper notes the concept of interdependency, which is inherent element in any social relationship and which is of paramount importance in any social context. This paper introduces a number of important SNA concepts and provides references to software that researchers could utilize for different analyses. The example of a one-mode network between audit partners is presented, to which a number of previously outlined concepts are applied and discussed. Finally, we describe the potential of a cutting-edge statistical method for SNA, exponential random graph model (ERGM), which act as a cutting-edge pattern-recognition device for network structure.

Abstract:Productivity incentives have lately been driving auditors to introduce and utilize various computer-based tools to assist their work. The aim of this study is to understand how and why productivity incentives may disturb interpersonal interaction and relations between auditors at different ranks, in the context of assurance service. A case study was carried out with auditors affiliated with Danish subsidiaries of Big 4 audit firms to inspect the implementation and utilization of global audit methodology (GAM), which is the ICT-based platform that guides subordinate auditors through the audit process. The results highlight that superior auditors tend to experience prevalent trust in ICT tool over subordinate auditors, where such conditions reduce the opportunity for experiencing comfort by subordinates, while superiors still perceive comfort due to being comfortable with procedures that are administered by the tool. Finally, this mechanism further creates conditions under which the necessity for establishing interactions and relations between auditors of different ranks become diminished.

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