Client-firm workplace culture and audit fees
52 Pages Posted: 23 Aug 2021 Last revised: 6 Nov 2021
Date Written: August 12, 2021
We document that client-firm workplace culture quality along three dimensions – innovation, integrity, and collaboration - is negatively related to audit fees. We find that this negative relation is stronger when the auditor is located further away from its client firm, and when client firms are associated with non-specialist auditors, weaker monitoring, less analyst following, and higher probability of informed trading. We also find that higher client-firm workplace culture quality is associated with fewer financial restatements and lawsuits, less audit effort, and lower likelihood of material weaknesses and auditor opinion on internal controls. Collectively, our findings suggest that information environment quality acts as a possible mechanism via which client-firm workplace culture and audit fees are related. This study contributes to the literature by showing that the workplace culture in client firms influences auditing-related firm outcomes.
Keywords: culture, innovation, integrity, collaboration, audit fee, information asymmetry
JEL Classification: M14, M41, M42
Suggested Citation: Suggested Citation