Volume 65, Issue 2 pp. 1428-1467
RESEARCH ARTICLE

Politically connected audit committee and audit risk: Evidence from a quasi-experiment

Yumin Karen Zhang Perry

Yumin Karen Zhang Perry

American University of Sharjah (AUS), Sharjah, UAE

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Christofer Adrian

Corresponding Author

Christofer Adrian

Department of Accounting, Monash University, Melbourne, Victoria, Australia

Correspondence

Christofer Adrian, Department of Accounting, Monash University, Melbourne, Vic. 3145, Australia.

Email: [email protected]

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Cameron Truong

Cameron Truong

Department of Accounting, Monash University, Melbourne, Victoria, Australia

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First published: 21 November 2024

Abstract

We present evidence that auditors consider audit committees with political connections in their audit pricing decisions. Our tests exploit Document 18 released in China in 2013 as a quasi-experiment where government officials are required to resign from serving as independent directors in Chinese publicly listed firms. We identify 2862 treatment firms whose audit committees immediately lost political connections due to the exogenous shock imposed by Document 18. Our difference-in-differences analyses show that treatment firms incur significant audit fees increases after Document 18. Overall, our findings support the view that external auditors perceive client firms whose audit committees possess political connections as of lower audit risk.

DATA AVAILABILITY STATEMENT

The data that support the findings of this study are available from the corresponding author upon reasonable request.

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