For this analysis we collect the identity of the firm’s auditor from Compustat, and begin by forming an indicator variable, Big4, which equals 1 if the firm is audited by a Big 4 firm, and 0 otherwise. A total of 123 (24) of our sample firms are audited by Big 4 (non-Big 4) auditors. Following a long line of academic research, we assume Big 4 audits are perceived to be of higher quality than non-Big 4 audits. Khurana and Raman (2004) find that this perception is driven by exposure to litigation rather than reputation concerns. Glendening