Political connections: a threat to auditor independence?

Abstract

Purpose

The purpose of this paper is to examine whether political connections further impair auditor independence by investigating the relationship between non-audit fees and audit fees and as to whether political connections moderate such relationship.

Design/methodology/approach

This study employs panel regression analysis. The panel data set consists of 379 firm-year observations for three years from year 2001 to 2003.

Findings

Based on 379 firm-year observations for the period of 2001-2003, grounded on two proxies of political connections namely politically connected firms and the proportion of Bumiputras directors, the authors find a positive and significant relationship between non-audit fees and audit fees, and the relationship becomes weaker, only for Bumiputra-dominated firms connected firms.

Originality/value

This study contributes to the extant literature by examining the role of political connections in the context of auditor independence. In addition, this study is conducted in Malaysia, which provides a unique institutional environment with the existence of political connections that is built on ethnic grounds.

Citation

Abdul Wahab, E.A., Mat Zain, M. and Abdul Rahman, R. (2015), "Political connections: a threat to auditor independence?", Journal of Accounting in Emerging Economies, Vol. 5 No. 2, pp. 222-246. https://doi.org/10.1108/JAEE-03-2012-0013