Political Corruption and Auditor Behavior: Evidence from US Firms

Xu, Hongkang; Dao, Mai; Petkevich, Alex

doi:10.1080/09638180.2018.1499547

Cited by 34 publications

(20 citation statements)

References 59 publications

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“…All these political and societal characteristics of democratic development are likely to yield a more stable political environment for auditors, leading to significant reductions in audit fees (Xu, Dao, and Petkevich 2019). Overall, we expect that democratic development transmits positive signals to auditors and lowers audit fees through lower informational asymmetries, improved institutional quality, political stability, and protection of property rights.…”

Section: Theoretical Backgroundmentioning

confidence: 93%

Democracy and Audit Pricing Decisions.

Kong¹

2020

Preprint

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Using data for 54 countries from 1989 to 2017, we empirically show that democratic development has a significant negative effect on audit fees. We find that a one standard deviation increase in democracy decreaseσ audit fees by 19.9% on average. Moreover, we find a big N premium decreases with democratization, and foreign auditors charge a higher premium to compensate information asymmetry against clients. We employ instrumental variables and unexpected regime changes as additional identification strategies. Overall, we show that democratization improves confidence in capital markets and reduces client-specific risks, which decreases audit fees.

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Section: Theoretical Backgroundmentioning

confidence: 93%

Democracy and Audit Pricing Decisions.

Kong¹

2020

Preprint

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“…In the US setting, Xu et al (2019) examine the impact of political corruption on auditor behavior US setting. The document that US firms headquartered in more corrupt regions pay higher audit fees, have longer audit report lags and are more likely to receive a going concern audit opinion.…”

Section: Review Of Empirical Studiesmentioning

confidence: 99%

“…With respect to political corruption, there is no standard definition of political corruption (Xu et al , 2019). Nevertheless, the conventional definition of political corruption is the unsuitable use of public power and authority for the objectives of individual or group gain (Aidt, 2003; Warren, 2004).…”

Section: Political Connections Versus Political Corruptionmentioning

confidence: 99%

“…Political connections and political corruption are two neighboring concepts that may affect the audit environment (Gul, 2006; Xu et al , 2019). While political connections refer to implicit or explicit ties of the firm through its corporate governance members with politicians, political institutions or government officials, political corruption refers to the external environment of the firm generally characterized by weak legal enforcement high level of corruption.…”

Section: Introductionmentioning

confidence: 99%

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Political connections, political corruption and auditing: a literature review

Khelil

Khlif

Amara

2021

JFC

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Purpose Given the interest in better understanding the economic effects of political connections and political corruption on auditor behavior, this paper aims to review empirical studies in the accounting and finance domain dealing with these topics. Design/methodology/approach Keywords used to search for relevant studies include “political connections or political corruption” with “audit fees, audit report lag, audit independence and audit opinion.” This paper consults several editorial sources including Elsevier, Electronic Journals Service Elton B. Stephens Company, Emerald, Springer, Palgrave Macmillan, Sage, Taylor and Francis and Wiley-Blackwell. The search yields 16 published studies since 2006. Findings The review reveals that the majority of studies dealing with the economic effect of political connections are conducted in an Asian setting. Political connections increase the likelihood of receiving a favorable audit opinion and they are associated with higher audit fees longer audit delays. However, they can compromise auditor independence. Studies dealing with the economic consequences of political corruption on auditing are mostly based in the US setting. The findings of the reviewed studies suggest that political corruption is associated with higher audit fees, longer audit delays and increases the likelihood of receiving a going concern audit opinion. Practical implications The synthesis suggests that political connections can adversely (compromise auditor independence) or beneficially (reduce the likelihood of issuing a going concern audit opinion) impact auditor behavior depending on the legal, institutional and cultural characteristics prevailing in a particular setting. Political corruptions increase audit assessed risks leading to a higher probability of issuing a going concern audit opinion and increased audit effort (audit fees and audit delays). It should be noted here that the literature linked to political corruption and auditor behavior is still in its infancy and much remains to be learnt if this stream of research is examined outside the US setting. Originality/value The review discusses the political connections and political corruption literature specifically devoted to auditor behavior. It identifies some limitations of this literature and offers guidance for future research avenues.

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“…Furthermore, the industry classification of a firm seems to have an important role in ARL, whereby having a lower ARL tends to be common among the financial industries (Ashton et al, 1987;Courtis, 1976). Similarly, Al-Ajmi ( 2008) has reported that banks have a shorter audit lag, whereas Xu, Dao, and Petkevich (2019) have recently examined political corruption and its effect on auditor behaviour. They have found that companies in the USA with headquarters located in highly corrupt areas have a longer ARL.…”

Section: Previous Studies On Audit Report Lagmentioning

confidence: 99%

Audit Committee Chair Attributes and Audit Report Lag in an Emerging Market

Al-Qublani¹,

Kamardin²,

Shafie³

2020

IJFR

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This study is motivated by the new listing requirement of Bursa Malaysia (formerly known as Kuala Lumpur Stock Exchange, KLSE) concerning the shorter timeframe of annual report release. Similarly, the call for future research on the efficacy of audit committee chair (ACC) attributes with audit report lag (ARL) has further driven this study. Therefore, this paper aimed to analyse the relationship between the ACC expertise and ACC tenure with the ARL of companies in the Main Market of Bursa Malaysia in 2015 using a sample of 139 companies. Furthermore, other audit committee (AC) attributes such as AC overlap and AC independence were also examined. Results of the study revealed an average of 95 days is required by the companies to conclude their respective audit reports. ACC with accounting expertise enhanced the ARL, whereas AC overlap and AC independence did not reduce the ARL. Concurrently, other control variables like AC size, frequency of AC meetings, firm size, leverage, and profitability depicted significant relationship with the ARL. Hence, this research is relevant to the current ARL literature via the provision of evidence and justification regarding the important role of ACC with accounting expertise towards the AC effectiveness, thus enhancing the timelines of financial reporting.

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Political Corruption and Auditor Behavior: Evidence from US Firms

Cited by 34 publications

References 59 publications

Democracy and Audit Pricing Decisions.

Democracy and Audit Pricing Decisions.

Political connections, political corruption and auditing: a literature review

Audit Committee Chair Attributes and Audit Report Lag in an Emerging Market

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