ABSTRACT: Using a comprehensive sample of switches to and from the largest auditors (i.e., the Big N), we examine empirically whether the sensitivity of Big N auditor switches to client risk and misalignment changed between the pre‐ and post‐Enron periods. Although we find an increase in the sensitivity to client misalignment, the sensitivity to client risk generally decreases. The results are consistent with Big N auditors rebalancing their audit client portfolios in response to post‐Enron capacity constraints arising from the supply of former Arthur Andersen clients and the audit demands imposed by Sarbanes‐Oxley rather than increasing their sensitivity to client risk. Additional evidence indicates that the Sarbanes‐Oxley demand shock did not affect Big N auditor switching behavior incremental to the initial Andersen supply shock.
