Trust of the Crowd and Audit Pricing

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See all articles by Konan Chan

Konan Chan

National Chengchi Unversity (NCCU) - Finance

Jianxin Cui

The University of Hong Kong - Faculty of Business and Economics

Weiyu Kuo

National Chengchi University (NCCU) - Department of International Business

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics

Date Written: June 21, 2020

Abstract

Using a novel dataset that captures public perceptions of the trustworthiness of client firms by extracting and converting social media feeds into an index, we find that auditors charge higher fees for client firms with lower trustworthiness, as client firms with higher trustworthiness are less likely to incur lawsuits. This correlation is stronger for the shorter audit tenures, younger client firms, and more complex auditing practices after the enactment of the SOX Act. Our results are robust to (i) including firm or county fixed effects, (ii) controlling for the internal control weaknesses and various corporate governance measures, and (iii) adding the trust index constructed from financial news. Our study highlights the role of the perceived trustworthiness of client firms in audit pricing decisions.

Keywords: audit pricing, trustworthiness, social media, natural language processing, textual analysis

JEL Classification: G30, G41, M14, M42, Z10

Suggested Citation

Chan, Konan and Cui, Jianxin and Kuo, Weiyu and Lin, Tse-Chun, Trust of the Crowd and Audit Pricing (June 21, 2020). Available at SSRN: https://ssrn.com/abstract=

Konan Chan

National Chengchi Unversity (NCCU) - Finance ( email )

No. 64, Chih-Nan Road
Section 2
Taipei, 11623
Taiwan
+886-2-29393091 ext 81239 (Phone)

Jianxin Cui (Contact Author)

The University of Hong Kong - Faculty of Business and Economics ( email )

Hong Kong

Weiyu Kuo

National Chengchi University (NCCU) - Department of International Business ( email )

Taipei City
Taiwan

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

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