Audit Fees and Social Capital

Anand Jha · Chen Yu

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Auditing, Earnings Management, Governance Social Capital and Networks Corporate Governance and Financial Management

Abstract

ABSTRACT We examine the impact of social capital on audit fees. We find that firms headquartered in U.S. counties with high social capital pay lower audit fees. Social capital measures the level of mutual trust in a region. Our results suggest that auditors judge the trustworthiness of their clients based on where the firm is headquartered and charge a premium when they trust the firm less. The basis of our results is the examination of more than 28,000 audit fees for more than 5,000 firms spanning the period of 2000 to 2009. The results are robust to controlling for a large number of firm-level and county-level characteristics. JEL Classifications: M42; M14.

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References

2000Bowling alone: the collapse and revival of American community 1988Social Capital in the Creation of Human Capital 2000Social Capital in the Creation of Human Capital 2000Bowling alone 1990Foundations of social theory 1998Social Capital: Its Origins and Applications in Modern Sociology 2008Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches 2003Corporate Governance and Equity Prices

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