Publication Type

Journal Article

Publication Date

3-2010

Abstract

In this study, we examine the effect of firm-level governance on the firm's choice of an external auditor. Further, we test how the relation between corporate governance and auditor choice may be affected by the strength of legal environment. The results show that firm-level governance scores are positively related to the firm's auditor choice. This association is strengthened by country-level legal protection. Specifically, the positive association between auditor choice and the firm-level governance scores is weaker (stronger) in a low (high) legal environment. These findings are robust after controlling for determinants that were found to be significant in earlier research. Overall, our results suggest that the benefits arising from the employment of high-quality auditors are likely to be greater when legal environment is stronger because both auditors and firms are subject to more severe legal punishments for opportunistic behavior.

Keywords

Auditor choice, corporate governance, emerging markets, legal environment, investor protection

Discipline

Accounting | Business Law, Public Responsibility, and Ethics | Corporate Finance

Research Areas

Corporate Governance, Auditing and Risk Management

Publication

Review of Pacific Basin Financial Markets and Policies

Volume

13

Issue

1

First Page

91

Last Page

126

ISSN

0219-0915

Identifier

10.1142/S0219091510001883

Publisher

World Scientific

Additional URL

https://doi.org/10.1142/S0219091510001883

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