Do Investors’ Tolerance for Ambiguity and Auditors’ Associations with Clients Who Have Had Restatements and Regulatory Enforcement Actions Impact Investing Decisions?

This research examines investing decisions when the company under consideration has an auditor with other clients who have had financial statement restatements and regulatory enforcement actions. Another issue addressed is whether investors’ tolerance for ambiguity affects these investing decisions. Participants were given a questionnaire involving an investment decision and were asked to provide risk assessments and investment amounts. They were assigned to one of two treatment groups, each of which described the same hypothetical company scenario except for its audit firm’s associations with other clients. One group was informed that the company’s auditor has had other clients who have recently had financial statement restatements and regulatory enforcement actions. The other group was informed that the company’s auditor has not recently had any clients who have had financial statement restatements or regulatory enforcement actions. Participants’ tolerance for ambiguity was measured with a commonly used metric. Results indicate that knowledge about an audit firm’s associations with other clients did not significantly impact either investors’ risk assessments (5.76 vs. 6.17 on a scale from 1 to 10) or investment amounts ($4917 vs. $4227). This research also did not find evidence that participants’ tolerance for ambiguity influences risk assessments (6.20 vs. 5.72 on a scale from 1 to 10) or investment amounts ($4857 vs. $4309).