External auditing and assurance services are key contributors to financial stability, trust, and market confidence, and constitute control mechanisms for protecting shareholders and investors from agency risk (Newman et al. 2008). The purpose of an audit is to lend higher credibility to financial reports by verifying the accounting information prepared by management. This purpose can only be fulfilled when an audit is of adequate quality. According to the generally accepted definition of DeAngelo (1981a), audit quality is the market-assessed joint probability that a given auditor will both discover a breach in the clients’ accounting system and report it. In contrast to the traditional view that statutory audits performed on companies are homogeneous across audit firms, Big 4 audit firms are widely viewed as producing higher quality audits than their non-Big 4 counterparts. DeAngelo (1981a) argues that client-specific quasi-rents flow to the incumbent auditor. Larger audit firms have more clients, i.e. more quasi-rents to lose, and thus a higher incentive to perform high quality audits. Moreover, Big 4 audit firms devote considerable resources to developing a reputation for high quality, earn quasi-rents from it, and have incentives to maintain high quality in order to retain their brandname reputation (Firth and Smith 1992). Prior archival studies also provide evidence that Big 4 audit firms deliver better audit services (Francis 2004). Furthermore, Francis et al. (2013) have recently provided evidence of an overall audit quality improvement in countries with a higher share of Big 4 audits. High quality audits reduce information asymmetries and agency conflicts between the client firm and its shareholders and creditors. Thus, providers of capital trust financial information more if it is audited by Big 4 auditors, which in turn decreases the cost of capital. Finally, high-quality audits serve as useful corporate governance mechanisms (Watts and Zimmerman 1986). The engagement of a Big 4 audit firm is therefore a possible approach for mitigating agency costs and signaling the credibility of information about firms. A substantial amount of literature has explored determinants of auditor choice. According to several studies, it can be assumed that with growing company size, along with increasing internationalization, the tendency towards Big N audit firms increases (Gassen and Skaife 2009; Guedhami et al. 2014; Ho and Kang 2013). Furthermore, the existence of blockholders, as well as when a company can be defined as belonging to a family, can be regarded as substitutes for Big N audits, as the blockholders have sufficient influence within the company and thus can rely on their own supervision (Ashbaugh and Warfield 2003; Guedhami et al. 2009; Ho and Kang 2013; Lin and Liu 2009). While prior research has studied the impact of financial indicators or company ownership structure, few studies have examined the effect of corporate governance on company propensity towards choosing a Big 4 audit firm. None of them has observed the European market, although the differences in corporate governance structure between Anglo-American, Chinese, and emerging countries on the one hand, and the Continental European countries on the other hand require separate analyses. In addition, there is a lack of research on the German market, although the German two-tier corporate governance system, with a separation of powers between the management and supervisory boards along with lower investor protection, in particular the strong limitation of auditor liability, might lead to specific findings. Furthermore, private debt holders are the major capital providers (Hackethal et al. 2005) and the ownership structure of German companies is highly concentrated (Franks and Mayer 2001). The particularities of the German setting could potentially affect the demand for audits as a monitoring mechanism. Due to the heterogeneous market characteristics throughout the European Union, ‘‘market trends therefore need to be analyzed on a country-bycountry basis, rather than at a ‘regional’ European level’’, which might cause further problems concerning EU-wide regulations (Le Vourc’h and Morand 2011). Despite the particularities of the Germans setting, it is representative for many other mainly Continental European countries.