U.S. Political Corruption and Audit Fees

The Accounting Review, Forthcoming

56 Pages Posted: 6 Mar 2020

See all articles by Anand Jha

Anand Jha

Texas A&M International University; Wayne State University

Manoj Kulchania

Wayne State University - Finance Group

Jared D. Smith

North Carolina State University - Poole College of Management

Date Written: January 9, 2020

Abstract

Using data on corruption convictions from the U.S. Department of Justice, we find that auditors charge higher fees when a firm is headquartered in a more corrupt district. This result is robust to a wide range of time and location fixed effects, using capital city isolation as an instrument, and propensity score matching. We also find that, relative to those in non-corrupt districts, firms in corrupt districts are more likely to have weak internal controls and to restate earnings and that their auditors exert greater effort. This evidence suggests that auditing firms in corrupt areas entails additional risk, which auditors price into fees.

Keywords: Corruption, Financial Reporting, Auditing

JEL Classification: D73, G31, G34

Suggested Citation

Jha, Anand and Jha, Anand and Kulchania, Manoj and Smith, Jared D., U.S. Political Corruption and Audit Fees (January 9, 2020). The Accounting Review, Forthcoming , Available at SSRN: https://ssrn.com/abstract=3533323 or http://dx.doi.org/10.2139/ssrn.3533323

Anand Jha

Texas A&M International University ( email )

Laredo, TX 78041
United States
9563262581 (Phone)

Wayne State University ( email )

5201 Cass Avenue
Detroit, MI 48202

HOME PAGE: http://https://ilitchbusiness.wayne.edu/faculty/profile.php?id=142206

Manoj Kulchania (Contact Author)

Wayne State University - Finance Group ( email )

2771 Woodward Ave
Detroit, MI 48201
United States
313-577-7837 (Phone)

HOME PAGE: http://ilitchbusiness.wayne.edu/profile/fr3472

Jared D. Smith

North Carolina State University - Poole College of Management ( email )

Nelson Hall
Raleigh, NC 27695-8614
United States

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