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Client corruption culture and audit quality: the conditioning effect of the competitive position of the incumbent auditor

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Listed:
  • Simon Fung

    (LB3.111, Deakin University Burwood Campus)

  • Viet Tuan Pham

    (Susquehanna University)

  • K. K. Raman

    (The University of Texas at San Antonio)

Abstract

Prior research suggests that corporate corruption culture captures an audit client’s general attitude towards opportunistic behavior. In this paper, we examine whether the relation between client corruption culture and audit quality is attenuated or exacerbated by the competitive position of the incumbent auditor in the local audit market. We find that the incumbent auditor’s weak competitive position in the local audit market exacerbates the negative effects of client corruption culture on audit quality. By the same token, we show that the incumbent auditor’s strong competitive position in the local audit market attenuates the adverse audit quality effects associated with client corruption culture. Our findings speak to the interplay between client corruption culture and the competitive position of the incumbent auditor in US local audit markets and is of potential interest to regulators concerned about the impact of client corruption culture and audit market competition on audit quality.

Suggested Citation

  • Simon Fung & Viet Tuan Pham & K. K. Raman, 2022. "Client corruption culture and audit quality: the conditioning effect of the competitive position of the incumbent auditor," Review of Quantitative Finance and Accounting, Springer, vol. 59(3), pages 1133-1171, October.
    • Handle: RePEc:kap:rqfnac:v:59:y:2022:i:3:d:10.1007_s11156-022-01072-w
    DOI: 10.1007/s11156-022-01072-w
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