173rd Seminar on Finance and Accounting

 

Topic:Politically Connected Boards and Audit Pricing: U.S. Evidence

 

Time:April 26, 2013(Friday)15:00-1630

 

Venue:Room 501, Jiageng Bld 2

 

Presenter:Zhifeng Yang, Assistant Professor of Accounting, City University of Hong Kong

 


 

Abstract:

This study examines how clients’ personal tie-based political connections influence auditors' assessments of audit risk as reflected in audit fees by using a comprehensive data set of 29,785 firm–year observations that are hand-collected from all U.S. Securities and Exchange Commission listed firm filings from 2001 to 2009. We find that auditors charge higher fees to politically connected firms than to non-connected ones. We also find that this incremental effect of a firm’s political connections on audit fees is more pronounced among firms with weaker corporate governance and more complicated operational structures. Furthermore, this relation has become more pervasive since the Sarbanes–Oxley Act. These findings suggest that auditors perceive politically connected firms as riskier. Accordingly, they exercise greater effort and charge higher fees to these connected firms. Our evidence is robust to a battery of econometric endogeneity remedies and to exogenous events such as presidential and mid-term elections and the intense financial crisis of 2008–2009. Our finding of higher audit fees being charged to connected firms is also robust in the presence of other forms of political influence, including campaign contributions and lobbying expenditures.

 

Presenter Introduction:

 

Dr. Yang Zhifeng received his Ph.D. in Finance from University of Alberta, and M.A. in Accounting and B.A. in MIS from Xiamen University. His research interests include corporate finance, governance, and auditing issues related to emerging markets, especially Chinese markets. He has published papers in top journals like The Accounting Review and Contemporary Accounting Research, etc.

 

Paper:

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