The Impacts of Judge Ideology on Auditors’ Litigation Risk: Evidence from Auditors’ Behaviors

63 Pages Posted: 9 Apr 2019

See all articles by Liuchuang Li

Liuchuang Li

Xi'an Jiaotong University (XJTU)

Baolei Qi

Xi'an Jiaotong University (XJTU) - School of Management

Ping Zhang

University of Toronto - Rotman School of Management

Date Written: March 16, 2019

Abstract

This study investigates whether and how judge ideology affects auditors’ litigation risk. Using the appointing president’s political affiliation to measure federal judge ideology, we document that audit fees charged to auditees locating in jurisdictions of circuit courts with more Democratic judges are higher. We also document that the auditees locating in jurisdictions of circuit courts with more Democratic judges are more likely to receive going concern opinions. We do not find meaningful impact of judge ideology on audit quality. We interpret our results as that judge ideology is an important factor in the legal environment that affects auditors’ behavior and auditors believe that the impact of judge ideology is resulted from political consideration rather than from interpretation of auditors’ professionalism.

Keywords: judge ideology, audit litigation risk, auditor behavior

JEL Classification: k40

Suggested Citation

Li, Liuchuang and Qi, Baolei and Zhang, Ping, The Impacts of Judge Ideology on Auditors’ Litigation Risk: Evidence from Auditors’ Behaviors (March 16, 2019). Available at SSRN: https://ssrn.com/abstract=3351123 or http://dx.doi.org/10.2139/ssrn.3351123

Liuchuang Li

Xi'an Jiaotong University (XJTU) ( email )

26 Xianning W Rd.
Xi'an Jiao Tong University
Xi'an, Shaanxi 710049
China

Baolei Qi

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

Ping Zhang (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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