IDEAS home Printed from https://ideas.repec.org/a/eee/advacc/v51y2020ics0882611020300699.html
   My bibliography  Save this article

Does corporate social responsibility affect auditor-client contracting? Evidence from auditor selection and audit fees

Author

Listed:
  • Du, Shuili
  • Xu, Xiaolu
  • Yu, Kun

Abstract

We find that firms with higher CSR performance are more likely to choose Big N auditors and less likely to switch to non-Big N auditors, consistent with socially responsible firms demanding higher audit quality. Furthermore, we provide robust evidence that firms with higher CSR performance pay lower audit fees using both levels and changes models, suggesting that higher CSR performance reduces auditor engagement risk. Our analysis based on the difference-in-differences approach indicates that it is higher CSR performance that leads to lower audit fees, not vice versa. Overall, the results highlight the important role of CSR performance in auditor-client contracting.

Suggested Citation

  • Du, Shuili & Xu, Xiaolu & Yu, Kun, 2020. "Does corporate social responsibility affect auditor-client contracting? Evidence from auditor selection and audit fees," Advances in accounting, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:advacc:v:51:y:2020:i:c:s0882611020300699
    DOI: 10.1016/j.adiac.2020.100499
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0882611020300699
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.adiac.2020.100499?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Chris E. Hogan & Michael S. Wilkins, 2008. "Evidence on the Audit Risk Model: Do Auditors Increase Audit Fees in the Presence of Internal Control Deficiencies?," Contemporary Accounting Research, John Wiley & Sons, vol. 25(1), pages 219-242, March.
    2. Scott Whisenant & Srinivasan Sankaraguruswamy & K. Raghunandan, 2003. "Evidence on the Joint Determination of Audit and Non‐Audit Fees," Journal of Accounting Research, Wiley Blackwell, vol. 41(4), pages 721-744, September.
    3. Jong Eun Lee, 2018. "Internal control deficiencies and audit pricing: evidence from initial public offerings," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(4), pages 1201-1229, December.
    4. Jere R. Francis & Paul N. Michas & Michael D. Yu, 2013. "Office Size of Big 4 Auditors and Client Restatements," Contemporary Accounting Research, John Wiley & Sons, vol. 30(4), pages 1626-1661, December.
    5. repec:zbw:bofrdp:2013_013 is not listed on IDEAS
    6. Leventis, Stergios & Hasan, Iftekhar & Dedoulis, Emmanouil, 2013. "The cost of sin: The effect of social norms on audit pricing," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 152-165.
    7. Neil Fargher & Alicia Jiang & Yangxin Yu & Gary Monroe, 2014. "How do auditors perceive CEO's risk-taking incentives?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 54(4), pages 1157-1181, December.
    8. Schwartz, Mark S. & Carroll, Archie B., 2003. "Corporate Social Responsibility: A Three-Domain Approach," Business Ethics Quarterly, Cambridge University Press, vol. 13(4), pages 503-530, October.
    9. John D. Lyon & Michael W. Maher, 2005. "The Importance of Business Risk in Setting Audit Fees: Evidence from Cases of Client Misconduct," Journal of Accounting Research, Wiley Blackwell, vol. 43(1), pages 133-151, March.
    10. Connie L. Becker & Mark L. Defond & James Jiambalvo & K.R. Subramanyam, 1998. "The Effect of Audit Quality on Earnings Management," Contemporary Accounting Research, John Wiley & Sons, vol. 15(1), pages 1-24, March.
    11. Henri Servaes & Ane Tamayo, 2013. "The Impact of Corporate Social Responsibility on Firm Value: The Role of Customer Awareness," Management Science, INFORMS, vol. 59(5), pages 1045-1061, May.
    12. Diego Prior & Jordi Surroca & Josep A. Tribó, 2008. "Are Socially Responsible Managers Really Ethical? Exploring the Relationship Between Earnings Management and Corporate Social Responsibility," Corporate Governance: An International Review, Wiley Blackwell, vol. 16(3), pages 160-177, May.
    13. Jong†Hag Choi & T. J. Wong, 2007. "Auditors' Governance Functions and Legal Environments: An International Investigation," Contemporary Accounting Research, John Wiley & Sons, vol. 24(1), pages 13-46, March.
    14. Wen-Chi Sun & Hua-Wei Huang & Mai Dao & Chaur-Shiuh Young, 2017. "Auditor selection and corporate social responsibility," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 44(9-10), pages 1241-1275, October.
    15. Gao, Feng & Lisic, Ling Lei & Zhang, Ivy Xiying, 2014. "Commitment to social good and insider trading," Journal of Accounting and Economics, Elsevier, vol. 57(2), pages 149-175.
    16. Jordi Surroca & Josep A. Tribó, 2008. "Managerial Entrenchment and Corporate Social Performance," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(5‐6), pages 748-789, June.
    17. Aaron K. Chatterji & Michael W. Toffel, 2010. "How firms respond to being rated," Strategic Management Journal, Wiley Blackwell, vol. 31(9), pages 917-945, September.
    18. Louise Yi Lu & Greg Shailer & Yangxin Yu, 2017. "Corporate Social Responsibility Disclosure and the Value of Cash Holdings," European Accounting Review, Taylor & Francis Journals, vol. 26(4), pages 729-753, October.
    19. Kaplan, Steven E. & Williams, David D., 2012. "The changing relationship between audit firm size and going concern reporting," Accounting, Organizations and Society, Elsevier, vol. 37(5), pages 322-341.
    20. Darren D. Lee & Robert W. Faff, 2009. "Corporate Sustainability Performance and Idiosyncratic Risk: A Global Perspective," The Financial Review, Eastern Finance Association, vol. 44(2), pages 213-237, May.
    21. Lenard, Mary Jane & Petruska, Karin A. & Alam, Pervaiz & Yu, Bing, 2016. "Internal control weaknesses and evidence of real activities manipulation," Advances in accounting, Elsevier, vol. 33(C), pages 47-58.
    22. Paul A. Griffin & David H. Lont & Yuan Sun, 2010. "Agency problems and audit fees: further tests of the free cash flow hypothesis," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 50(2), pages 321-350, June.
    23. Clive Lennox & Jeffrey A. Pittman, 2010. "Big Five Audits and Accounting Fraud," Contemporary Accounting Research, John Wiley & Sons, vol. 27(1), pages 6-6, March.
    24. Lin, K.C. & Dong, Xiaobo, 2018. "Corporate social responsibility engagement of financially distressed firms and their bankruptcy likelihood," Advances in accounting, Elsevier, vol. 43(C), pages 32-45.
    25. Shuili Du & Edward Vieira, 2012. "Striving for Legitimacy Through Corporate Social Responsibility: Insights from Oil Companies," Journal of Business Ethics, Springer, vol. 110(4), pages 413-427, November.
    26. Sun, Li & Walkup, Brian & Wu, Kean, 2019. "Sales order backlog and corporate social responsibility," Advances in accounting, Elsevier, vol. 47(C).
    27. Ping-Sheng Koh & Cuili Qian & Heli Wang, 2014. "Firm litigation risk and the insurance value of corporate social performance," Strategic Management Journal, Wiley Blackwell, vol. 35(10), pages 1464-1482, October.
    28. Vivian W. Fang & Xuan Tian & Sheri Tice, 2014. "Does Stock Liquidity Enhance or Impede Firm Innovation?," Journal of Finance, American Finance Association, vol. 69(5), pages 2085-2125, October.
    29. Jordi Surroca & Josep A. Tribó, 2008. "Managerial Entrenchment and Corporate Social Performance," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(5‐6), pages 748-789, June.
    30. Mónica LópezPuertas-Lamy & Kurt Desender & Mircea Epure, 2017. "Corporate social responsibility and the assessment by auditors of the risk of material misstatement," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 44(9-10), pages 1276-1314, October.
    31. Joseph P. H. Fan & T. J. Wong, 2005. "Do External Auditors Perform a Corporate Governance Role in Emerging Markets? Evidence from East Asia," Journal of Accounting Research, Wiley Blackwell, vol. 43(1), pages 35-72, March.
    32. DeAngelo, Linda Elizabeth, 1981. "Auditor size and audit quality," Journal of Accounting and Economics, Elsevier, vol. 3(3), pages 183-199, December.
    33. Chiang, Wen-Chyuan & Shang, Jennifer & Sun, Li, 2017. "Broad bond rating change and irresponsible corporate social responsibility activities," Advances in accounting, Elsevier, vol. 39(C), pages 32-46.
    34. Ferdinand A. Gul & Charles J. P. Chen & Judy S. L. Tsui, 2003. "Discretionary Accounting Accruals, Managers' Incentives, and Audit Fees," Contemporary Accounting Research, John Wiley & Sons, vol. 20(3), pages 441-464, September.
    35. James S. Linck & Jeffry M. Netter & Tina Yang, 2009. "The Effects and Unintended Consequences of the Sarbanes-Oxley Act on the Supply and Demand for Directors," The Review of Financial Studies, Society for Financial Studies, vol. 22(8), pages 3287-3328, August.
    36. Jordi Surroca & Josep A. Tribó & Sandra Waddock, 2010. "Corporate responsibility and financial performance: the role of intangible resources," Strategic Management Journal, Wiley Blackwell, vol. 31(5), pages 463-490, May.
    37. David A. Waldman & Donald S. Siegel & Mansour Javidan, 2006. "Components of CEO Transformational Leadership and Corporate Social Responsibility," Journal of Management Studies, Wiley Blackwell, vol. 43(8), pages 1703-1725, December.
    38. Paul C. Godfrey & Craig B. Merrill & Jared M. Hansen, 2009. "The relationship between corporate social responsibility and shareholder value: an empirical test of the risk management hypothesis," Strategic Management Journal, Wiley Blackwell, vol. 30(4), pages 425-445, April.
    39. DeFond, Mark & Zhang, Jieying, 2014. "A review of archival auditing research," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 275-326.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wang, Yujie & Tsang, Albert & Xiang, Yi & Yan, Shuo, 2024. "How can regulators affect corporate social responsibility? Evidence from regulatory disclosures of consumer complaints in the U.S," The British Accounting Review, Elsevier, vol. 56(1).
    2. Ali Uyar & Cemil Kuzey & Mehmet Ali Koseoglu & Abdullah S Karaman, 2023. "Travel and tourism competitiveness index and the tourism sector development," Tourism Economics, , vol. 29(4), pages 1005-1031, June.
    3. Chen Zhao & Jiaxuan Zhu & Zhiyao Xu & Yixuan Wang & Bin Liu & Lu Yuan & Xiaowen Wang & Jiali Xiong & Yiming Zhao, 2022. "The Effect of Air Pollution Control Auditing on Reducing Carbon Emissions: Evidence from China," IJERPH, MDPI, vol. 19(24), pages 1-15, December.
    4. Masoud Azizkhani & Sarowar Hossain & Mai Nguyen, 2023. "Effects of audit committee chair characteristics on auditor choice, audit fee and audit quality," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 3675-3707, September.
    5. Ines Ben Jazia & Maali Kachouri, 2024. "Board Size as a Mediator in the Relationship Between Corporate Social Responsibility and Audit Quality: Insights from Europe," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(2), pages 91-112.
    6. Mujeeb Saif Mohsen Al-Absy & Redhwan Al-Dhamari & Hamid Abdulkhaleq Hasan Al-Wesabi & Khaldoon Albitar, 2024. "Are country-level political uncertainty and power distance important to the CSR-audit report lag nexus? Evidence from the GCC region," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 14(3), pages 483-515, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mujeeb Saif Mohsen Al-Absy & Redhwan Al-Dhamari & Hamid Abdulkhaleq Hasan Al-Wesabi & Khaldoon Albitar, 2024. "Are country-level political uncertainty and power distance important to the CSR-audit report lag nexus? Evidence from the GCC region," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 14(3), pages 483-515, July.
    2. Michael Mayberry, 2020. "Good for managers, bad for society? Causal evidence on the association between risk‐taking incentives and corporate social responsibility," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(9-10), pages 1182-1214, October.
    3. Liu, Haiming & Chiang, Yao-Min, 2024. "Employment protection and environmental corporate social responsibility: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 92(C).
    4. Bryan, David B., 2017. "Organized labor, audit quality, and internal control," Advances in accounting, Elsevier, vol. 36(C), pages 11-26.
    5. DeFond, Mark & Zhang, Jieying, 2014. "A review of archival auditing research," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 275-326.
    6. Christensen, Brant E. & Newton, Nathan J. & Wilkins, Michael S., 2021. "How do team workloads and team staffing affect the audit? Archival evidence from U.S. audits," Accounting, Organizations and Society, Elsevier, vol. 92(C).
    7. Omrane Guedhami & Jeffrey A. Pittman & Walid Saffar, 2014. "Auditor Choice in Politically Connected Firms," Journal of Accounting Research, Wiley Blackwell, vol. 52(1), pages 107-162, March.
    8. Jeffrey Pittman & Baolei Qi & Yi Si & Zi-Tian Wang & Chongwu Xia, 2024. "Individual Auditor Social Responsibility and Audit Quality: Evidence from China," Journal of Business Ethics, Springer, vol. 194(1), pages 119-144, September.
    9. Sylvia Grewatsch & Ingo Kleindienst, 2017. "When Does It Pay to be Good? Moderators and Mediators in the Corporate Sustainability–Corporate Financial Performance Relationship: A Critical Review," Journal of Business Ethics, Springer, vol. 145(2), pages 383-416, October.
    10. de la Fuente, Gabriel & Velasco, Pilar, 2024. "Pretending to be sustainable: Is ESG disparity a symptom?," Journal of Contemporary Accounting and Economics, Elsevier, vol. 20(2).
    11. Gul, Ferdinand A. & Krishnamurti, Chandrasekhar & Shams, Syed & Chowdhury, Hasibul, 2020. "Corporate social responsibility, overconfident CEOs and empire building: Agency and stakeholder theoretic perspectives," Journal of Business Research, Elsevier, vol. 111(C), pages 52-68.
    12. Jeffrey L. Callen & Xiaohua Fang, 2020. "Local Gambling Norms and Audit Pricing," Journal of Business Ethics, Springer, vol. 164(1), pages 151-173, June.
    13. Ahrum Choi & Jeong-Bon Kim & Jay Junghun Lee & Jong Chool Park, 2024. "Market for corporate control and demand for auditing: evidence from international M&A laws," Review of Accounting Studies, Springer, vol. 29(3), pages 2753-2797, September.
    14. Reiner Quick & Niklas Schenk & Florian Schmidt & Thilo Towara, 2018. "The impact of corporate governance on auditor choice: evidence from Germany," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 22(2), pages 251-283, June.
    15. Liu, Xinghe & Xu, Huifeng & Lu, Meiting, 2021. "Do auditors respond to stringent environmental regulation? Evidence from China’s new environmental protection law," Economic Modelling, Elsevier, vol. 96(C), pages 54-67.
    16. Nguyen, Lily & Vu, Le & Yin, Xiangkang, 2020. "The undesirable effect of audit quality: Evidence from firm innovation," The British Accounting Review, Elsevier, vol. 52(6).
    17. Tsang, Albert & Yu, Li, 2023. "Socially responsible local firms and stock market participation: Evidence from the U.S. household survey," Journal of Behavioral and Experimental Finance, Elsevier, vol. 40(C).
    18. Smith, Deborah Drummond & Gleason, Kimberly C. & Kannan, Yezen H., 2021. "Auditor liability and excess cash holdings: Evidence from audit fees of foreign incorporated firms," International Review of Financial Analysis, Elsevier, vol. 78(C).
    19. Samuel Jebaraj Benjamin, 2019. "The Effect of Financial Constraints on Audit Fees," Capital Markets Review, Malaysian Finance Association, vol. 27(2), pages 59-87.
    20. Jaehong Lee, 2021. "CEO Overconfidence and Voluntary Disclosure of Greenhouse Gas Emissions: With a Focus on the Role of Corporate Governance," Sustainability, MDPI, vol. 13(11), pages 1-19, May.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:advacc:v:51:y:2020:i:c:s0882611020300699. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/advances-in-accounting/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.