Audit Firms’ Corporate Social Responsibility Activities and Auditor Reputation

Gunn, Joshua L.; Li, Chan; Liao, Lin; Yang, Jiancheng; Zhou, Shan

doi:10.2139/ssrn.4011935

Cited by 5 publications

(9 citation statements)

References 61 publications

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“…Our study differs from Gunn et al (2022) along several dimensions. Firstly, Gunn et al (2022) examine the role of CSR in enhancing audit firms' reputations by investigating the relationship between CSR MAJ 38,2 engagement and client growth. Unlike their focus, our paper explores the effect of CSR activities on audit quality.…”

Section: Introductionmentioning

confidence: 77%

“…Therefore, our paper contributes to the literature by answering this call in a Chinese setting. A contemporaneous working paper by Gunn et al (2022) also investigates Chinese audit firms' CSR activities. Our study differs from Gunn et al (2022) along several dimensions.…”

Section: Introductionmentioning

confidence: 99%

“…A contemporaneous working paper by Gunn et al (2022) also investigates Chinese audit firms' CSR activities. Our study differs from Gunn et al (2022) along several dimensions. Firstly, Gunn et al (2022) examine the role of CSR in enhancing audit firms' reputations by investigating the relationship between CSR MAJ 38,2 engagement and client growth.…”

Section: Introductionmentioning

confidence: 99%

“…Unlike their focus, our paper explores the effect of CSR activities on audit quality. Secondly, Gunn et al (2022) borrow from the marketing and management literature to demonstrate that CSR serves as a reputation-building mechanism by creating an honest image and enhancing perceptions of client orientation. Our study differs theoretically from theirs as it develops two conflicting hypotheses based on two streams of the CSR literature: one that treats CSR as a signal of ethical culture and another that regards CSR as a risk-management strategy.…”

Section: Introductionmentioning

confidence: 99%

“…Our results also highlight the ethical nature of audit-firm CSR instead of its reputation-enhancing role. Thirdly, we construct a larger and more comprehensive CSR sample (2,347 observations over the period of 2007-2020) than that used by Gunn et al (2022) and the data we collected for four types of CSR activities enable us to identify which individual types of CSR matter the most in improving audit quality.…”

Section: Introductionmentioning

confidence: 99%

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Do socially responsible audit firms provide higher audit quality? An investigation of corporate social responsibility activity in audit firms

Chen

Liu²,

Liu³

et al. 2022

MAJ

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Purpose The paper aims to examine the corporate social responsibility (CSR) activity of audit firms. Design/methodology/approach Using hand-collected data on all Chinese audit firms’ CSR activities from 2007 to 2020, this study constructs two measures to proxy for audit firms’ CSR engagement: a dummy variable to indicate whether an auditor engages in CSR activities in year t and the frequency with which auditors conduct CSR activities in year t. The authors use ordinary least squares regression as a baseline methodology, along with the entropy balancing method and instrumental variable approach to alleviate potential endogeneity concerns. Findings The baseline results show that socially responsible audit firms provide higher quality audit services than their counterparts. In particular, the authors find that clients audited by socially responsible audit firms are less likely to receive an aggressively clean opinion. Moreover, the findings suggest that CSR activities related to community and employees are more relevant in improving audit quality compared with those related to other dimensions of CSR. Further analyses show that capital markets and audit clients react positively to audit-firm CSR activity. Audit firms engaging in CSR increase their audit inputs in response to risky clients, as compared with their counterparts. Finally, cross-sectional analyses show that the positive relationship is more pronounced for non-Big 4 and non-industry experts and is attenuated by within-firm geographic dispersion. In terms of client characteristics, the positive effect of audit-firm CSR is stronger when their clients face the higher financial risk or have lower CSR awareness than others. Taken together, these findings are consistent with the ethical view of audit-firm CSR engagement. Practical implications The study advances investors’ understanding of audit-firm CSR engagement and helps them evaluate the credibility of audited financial reports. Besides, the findings may also help guide the audit firms to conduct more CSR activities and help guide the audit clients to choose CSR audit firms. Originality/value To the best of the authors’ knowledge, this study provides the first large-sample evidence by empirically examining the association between audit-firm CSR activity and audit service performance. Besides, this paper also explores audit-firm CSR activity from two competing perspectives, thereby providing a comprehensive understanding of this issue. Finally, this work responds to the call for more CSR research in emerging markets.

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Section: Introductionmentioning

confidence: 77%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Do socially responsible audit firms provide higher audit quality? An investigation of corporate social responsibility activity in audit firms

Chen

Liu²,

Liu³

et al. 2022

MAJ

View full text Add to dashboard Cite

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To switch or not to switch? The effect of audit firms’ economies of scale on audit firm switches after audit price deregulation in China

Cao¹,

Chen

et al. 2023

Journal of Accounting and Public Policy

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The impact of risk-taking and auditor characteristics on value creation in pre-Covid 19 and post-Covid 19 pandemic

Arianpoor

Mizban

2022

MRR

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Purpose This study aims to investigate the impact of risk-taking and auditor characteristics on value creation in companies listed on the Tehran Stock Exchange. In addition, it investigates the moderator role of auditor characteristics in the impact of risk-taking on value creation, especially in pre-Covid 19 and post-Covid 19 pandemic. Design/methodology/approach The information about 199 company in 2014–2021 was examined. In the present study, in accordance with the related theoretical literature and the importance of auditor specialization, auditor tenure and auditor reputation, these factors were considered as the auditor characteristics. Findings The present findings based on the generalized least squares (GLS) method showed that risk-taking positively affects the value creation. The auditor characteristics (auditor specialization, auditor tenure and auditor reputation) have a significant positive effect on the value creation. Furthermore, the auditor characteristics enhance the impact of risk-taking on value creation. The results of generalized method of moments method and robust regression analysis are consistent with the GLS results. To take into account the Covid-19 conditions, the data were divided into pre-Covid-19 and post-Covid-19 years. The results showed that auditor characteristics moderate the impact of risk-taking on value creation in pre-Covid 19 and post-Covid 19. Originality/value The study highlights the role of auditor characteristics in the value creation, especially in the emerging market. Given that Covid-19 has seriously damaged global economic well-being and has put companies at a double risk, the present findings can be useful for managers, investors and the international community, and help company managers make risk-taking policies and select auditors with appropriate characteristics.

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Audit Firms’ Corporate Social Responsibility Activities and Auditor Reputation

Cited by 5 publications

References 61 publications

Do socially responsible audit firms provide higher audit quality? An investigation of corporate social responsibility activity in audit firms

Do socially responsible audit firms provide higher audit quality? An investigation of corporate social responsibility activity in audit firms

To switch or not to switch? The effect of audit firms’ economies of scale on audit firm switches after audit price deregulation in China

The impact of risk-taking and auditor characteristics on value creation in pre-Covid 19 and post-Covid 19 pandemic

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