The Effects of Generalized Trust and Civic Cooperation on the Big N Presence and Audit Fees Across the Globe

60 Pages Posted: 29 Jul 2016 Last revised: 23 Mar 2019

See all articles by W. Robert Knechel

W. Robert Knechel

University of Florida - Fisher School of Accounting

Natalia M. Mintchik

University of Cincinnati - Department of Accounting

Mikhail Pevzner

University of Baltimore - Merrick School of Business

Uma Velury

University of Delaware - Accounting & MIS

Date Written: December 12, 2017

Abstract

We examine the impact of informal cultural attributes, such as generalized trust and civic cooperation in a society, on the presence of Big N auditors and audit fees in country-specific audit markets. On one hand, because societies with higher trust and civic cooperation are associated with low levels of agency problems, we could expect reduced demand and pricing of audit services when trust and civic cooperation is high. On the other hand, high trust societies may experience high societal costs of inappropriate behavior and place high value on a strong audit function which could result in a relatively high demand for audit services. In additional tests, we control for the strength of the protection of minority shareholders and its interaction with societal trust/civic cooperation. We find that both trust and civic cooperation are positively associated with Big N presence and audit fees in countries with weak investor protection. However, in countries with strong investor protection, trust is negatively associated with Big N presence and audit fees. These results suggest that both formal and informal institutions can act as substitutes in determining the demand and supply for audit services in international context.

Keywords: trust, audit, civic cooperation

JEL Classification: M40, M41

Suggested Citation

Knechel, 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 (December 12, 2017). Auditing: A Journal of Practice & Theory, 38(1), 193-219, February 2019. Available at SSRN: https://ssrn.com/abstract=2815180 or http://dx.doi.org/10.2139/ssrn.2815180

W. Robert Knechel

University of Florida - Fisher School of Accounting ( email )

Warrington College of Business
PO Box 117166
Gainesville, FL 32611-7166
United States

Natalia M. Mintchik

University of Cincinnati - Department of Accounting ( email )

Cincinnati, OH 45221-0211
United States

Mikhail Pevzner (Contact Author)

University of Baltimore - Merrick School of Business ( email )

1420 N. Charles St.
Baltimore, MD 21201-5779
United States

Uma Velury

University of Delaware - Accounting & MIS ( email )

Alfred Lerner College of Business and Economics
Newark, DE 19716
United States

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