What Determines Auditors' Career Outcomes?

Taking advantage of a unique data set from China about individual auditors’ personal backgrounds, we examine the factors that affect auditors’ demotion and promotion outcomes. We find that ability, accounting knowledge, and on-the-job performance all matter in auditors’ demotions and promotions, but ability, which is largely determined by the time of an individual’s entry into the audit profession, matters twice as much as knowledge or performance in auditors’ career outcomes. There is evidence that auditors’ career outcomes are less likely based on meritocracy for audit firms domiciled in provinces with weaker institutional environments. An auditor’s political connection matters in promotion to the partner rank but not in demotion or promotion below the partner rank. Female auditors are less likely to be promoted to the partner rank and more likely to be demoted but the gender effect disappears for audit firms whose top management is dominated by female audit partners.