Local creative culture and audit fees

Costa, Mabel D.; Habib, Ahsan

Abstract

This paper examines the association between local creative culture and audit fees. Using a large, unbalanced panel data of listed US firms between 2004 and 2018, we find evidence that firms headquartered in US counties with high creative culture tend to pay higher audit fees than firms headquartered in counties with low creative culture. We also find that such firms tend to have longer audit report lag and are subject to more shareholder litigation. Cross-sectional tests show that real earnings management, managerial risk-taking propensity, and external corporate governance environment moderate the positive association between creative culture and audit fees. The positive association between local creative culture and audit fees remains robust to controlling for endogeneity concerns. Our study contributes to the emerging literature on local creative culture by providing evidence that local creative culture encourages managers and employees to undertake risky initiatives, thereby increasing audit risks.

Citation

Costa, M. D., & Habib, A. (2023). Local creative culture and audit fees. The British Accounting Review, 55(2), Article 101151. https://doi.org/10.1016/j.bar.2022.101151

• Journal Article Type: Article
• Acceptance Date: Nov 21, 2022
• Online Publication Date: Nov 23, 2022
• Publication Date: 2023-03
• Deposit Date: Jan 23, 2023
• Publicly Available Date: May 24, 2023
• Journal: The British Accounting Review
• Print ISSN: 0890-8389
• Electronic ISSN: 1095-8347
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 55
• Issue: 2
• Article Number: 101151
• DOI: https://doi.org/10.1016/j.bar.2022.101151
• Public URL: https://durham-repository.worktribe.com/output/1184888