Competence vs. Independence: Auditors' connections with members of their clients' business community☆

• 成果类型: Article
• 署名作者: Defond, Mark; Li, Zengquan; Wong, T. J.; Wu, Kaiwen
• 署名单位: University of Southern California; Shanghai University of Finance & Economics
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/j.jacceco.2024.101702
• 发表日期: 2024
• 关键词: political connections; earnings management; performance; incentives; QUALITY; CHINA; TIES; INFORMATION; commitments; governance

摘要

Prior research finds that auditors' social connections with their clients harms audit quality. We examine auditors' social connections with members of their clients' business community, a setting in which auditors' connections may improve audit quality. While social ties within a client's business community should improve auditor competency, they also threaten auditor independence. We test the effects of auditors' network connections audit quality using data from China, where data on social connections and individual auditors are available. Auditors' business connections should be particularly beneficial in a relational economy like China, where clients heavily rely on social networks for contracting. We find that auditors with strong local business and government connections deliver higher quality audits as evidenced by fewer financial irregularities among clients. Our findings are consistent with the improved competency that arises from auditors' business connections outweighing the potential costs impaired auditor independence.