The Effects of Generalized Trust and Civic Cooperation on the Big N Presence and Audit Fees Across the Globe
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Type of Work70 pages
Citation of Original PublicationKnechel, W. Robert and Mintchik, Natalia M. and Pevzner, Mikhail and Velury, Uma, The Effects of Generalized Trust and Civic Cooperation on the Big N Presence and Audit Fees Across the Globe (July 27, 2016).
We examine the impact of informal cultural attributes, such as generalized trust in a society (hereafter “trust”) and civic cooperation, on audit fees and Big N presence in countryspecific audit markets. The relation between trust (civic cooperation) and audit fees/Big N presence is ambiguous. On one hand, higher trust and civic cooperation are associated with lower levels of agency problems, thereby reducing the demand and price of audit services. On the other hand, higher trust (civic cooperation) societies may place more value on a strong audit function due to higher societal costs of inappropriate behavior, resulting in a relatively higher demand and cost of audit services. We find that the presence of Big N auditors is stronger in countries with higher levels of civic cooperation, and that audit fees are higher in countries with higher trust and civic cooperation. The positive impact of societal trust and civic cooperation on audit fees and Big N presence is weakened in countries with stronger levels of investor protection. These results suggest that both formal and informal institutions can act as substitutes in determining the demand and supply for audit services.