Corporate Managers' Reliance on Internal Auditor Recommendations

Abstract

SUMMARY We investigate whether corporate managers' reliance on internal auditors' recommendations in an operational setting is influenced by three recommendation attributes: (1) whether the recommendation was consistent with or inconsistent with management preferences, (2) whether the recommendation was given by an outsourced or in-house internal auditor, and (3) whether the recommendation was quantitative or qualitative in nature. We use a 2 × 2 × 2 fractional factorial design to test our predictions. We find that managers change their initial position more when presented with preference-inconsistent recommendations than when presented with preference-consistent recommendations. We do not find differences in managers' reliance on the preference-inconsistent, non-quantified recommendations of outsourced versus in-house internal auditors. However, we find that managers are more likely to rely on the preference-inconsistent recommendations of in-house internal auditors when their recommendations are quantified as opposed to non-quantified, an effect that is not observed with outsourced internal auditors. Data Availability: Please contact the authors.