THE COMEBACK KIDS: BOOMERANG AUDITOR INDEPENDENCE THROUGH THE LENS OF IDENTITY THEORY

Abstract

Boomerang hiring, the re-hiring of employees who have previously worked for an organization is on the rise. With this rise comes a need to understand the benefits and drawbacks of this labor market strategy. In the field of accounting studies so far have yet to examine the potential effects of time spent in industry on auditor independence. This study uses an experimental design with practicing auditors to examine the differences in decision making between non-boomerang hires and boomerang hires in a goodwill impairment decision situation. Results suggest that there are indeed differences between non-boomerang auditors and boomerang auditors, with boomerang auditors being more likely to acquiesce to client preferred accounting treatment. This relationship is mediated by auditor identification with their client, which suggests a psychological mechanism related to Identity Theory. Additionally, I find evidence that whether a boomerang auditor’s tenure in industry was a positive or negative experience matters in their decision-making process. Overall, the findings of this study suggest that time in industry before returning to public accounting perhaps introduces subconscious biases that lead to impaired decision making on the part of boomerang hires in public accounting with implications for future research and hiring practices on the accounting labor market.