Culture and Auditor Choice: A Test of the Secrecy Hypothesis
Posted: 26 Feb 2008
The purpose of this study is to investigate whether firms' auditor choice relates to national culture. We construct a novel measure of secretiveness based on Hofstede's (1980) cultural factors. Using a very large sample of firms from 37 countries and controlling for a number of firm- and country-level factors, we find that firms in more secretive countries are less likely to hire a Big 4 auditor. We also document that the relation between secrecy dimension of national culture and auditor choice is mitigated by the firms' degree of internationalization. These results establish a link between national culture and financial reporting quality through the firm's choice of auditor.
Keywords: Culture, Secrecy, Auditor Quality, International
JEL Classification: F23, G15, M49, M41, M44, M47
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