The Impact of Religiosity on Audit Pricing

Leventis, S.; Dedoulis, E.; Abdelsalam, O.

Abstract

Prior literature has demonstrated that religiosity is associated with a reduced acceptance of unethical business practices and financial reporting irregularities. On this premise, we examine whether religiosity, conceptualized as the degree of adherence to religious norms in the geographical area where a firm’s headquarters is located, has an impact on audit firms’ pricing decisions in the US. We measure the intensity of religiosity by the number of adherents relative to the total population in a county and demonstrate that increased religious adherence operates as an institutionalized monitoring mechanism that decreases audit risk and audit costs, which is, in turn, reflected in reduced audit pricing. Additional tests suggest that the impact of religiosity on auditors’ pricing decisions is not differentiated by levels of auditor expertise but that audit fees are determined by an auditor’s relative location in a market sector and religious adherence. We conclude that religious adherence reduces the need for shareholders to bear the costs of monitoring agents, a finding which could be of importance for market participants and regulators.

Citation

Leventis, S., Dedoulis, E., & Abdelsalam, O. (2018). The Impact of Religiosity on Audit Pricing. Journal of Business Ethics, 148(1), 53-78. https://doi.org/10.1007/s10551-015-3001-x

• Journal Article Type: Article
• Acceptance Date: Dec 17, 2015
• Online Publication Date: Dec 29, 2015
• Publication Date: Mar 1, 2018
• Deposit Date: Dec 20, 2015
• Publicly Available Date: Dec 29, 2016
• Journal: Journal of Business Ethics
• Print ISSN: 0167-4544
• Electronic ISSN: 1573-0697
• Publisher: Springer
• Peer Reviewed: Peer Reviewed
• Volume: 148
• Issue: 1
• Pages: 53-78
• DOI: https://doi.org/10.1007/s10551-015-3001-x
• Keywords: Agency costs, Audit fees, Audit pricing, Religiosity.
• Public URL: https://durham-repository.worktribe.com/output/1416380