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This paper aims to examine whether the cultural distance between an international audit firm and target audit clients in emerging countries is associated with auditor choice decisions.

Based on a sample of 104,699 firm-year observations from 20 countries over 2009–2020, logit regression analysis is used to investigate the research questions.

The authors find strong evidence that cultural distance affects the auditor selection decision. The results suggest Big N auditors are more likely to be chosen by target audit clients in emerging countries with less cultural distance. In other words, target audit clients in emerging countries prefer to choose international audit firms whose cultural characteristics are similar. Moreover, results from two-stage least squares regression further suggest that the observed effect of cultural distance on auditor choice is unlikely to be driven by potential endogeneity.

The auditor choice is limited to companies hiring Big N auditors; the authors exclude any switches to non-Big N auditors or switches between Big N auditors. The study also suffers from the concerns about methodological and conceptual criticism that most studies about national culture have to deal with. Finally, through this paper, the authors carry out the auditor selection process from the target audit clients’ side; the authors do not discuss the supply side of the process.

The authors contribute to the audit choice literature by providing evidence that the cultural distance between the countries of audit firms and target audit clients plays a role in the auditor choice decision. The study complements the prior auditor choice literature, focusing primarily on Western economies, by structuring the sample scope to emerging market economies.

One of the strongest connections in politics in developing countries is through military links. This study aims to examine the auditor choice preference of the militarily-connected firms in Indonesia, an emerging country where there is a strong influence from the military on political decision-making.

The analysis used 3,473 firms-year observations listed on the Indonesian Stock Exchange spanning from 2003 to 2017 using regression and other statistical tests.

The results reveal that firms with a militarily-connected director are less likely to appoint one of the Big 4 auditors. Using the military reform as a natural experiment, the finding shows that militarily-connected firms did not change their auditor choice preference even after the military reform. Interestingly, I find that connected firms are associated with high earnings management. In addition, the different retirement position level and military affiliations of the connected directors generate different outcomes related to the auditor choice decision. Overall, the results indicate that militarily-connected firms were less likely to appoint one of the Big 4 auditors both before and after the military reforms. These results are robust, even after the author controlled for political connections, year fixed effects and industry fixed effects.

Because of the limitations of the prior literature on military connections, this study is developed based on the assumption that the militarily-connected directors have identical behavior whether they serve in either public or private companies. However, this assumption could be invalid which potentially affects the interpretation of some of the results in this study.

This paper provides direct evidence of the auditor choice preference of firms with a military connection. The evidence builds on the existing literature on the difference in auditor choice preference between politically and militarily-connected firms.

From 2006 onwards very large Belgian nonprofit organizations (NPOs) are legally required to appoint an external auditor. In this context we investigate whether auditor choice in favor of a sector expert, being a higher quality auditor, is associated with NPOs’ expectations regarding several auditor attributes. We find that NPOs are more likely to choose a sector expert if they attach higher importance to an auditor’s client focus and relationship with management. NPOs are less likely to choose a sector expert if they care more about the practical execution of the audit. We provide recommendations for increasing the appeal of sector expertise as valuable auditor attribute. The resulting quality increase of NPOs’ financial statements and audit reports could benefit various stakeholders.

This paper aims to examine various factors affecting the pricing of audit services and the selection of auditors in the Indian audit market. This paper also aims to investigate the impact of financial distress conditions on the audit pricing and auditor choice decisions of a firm, particularly in the context of a developing economy.

The sample comprises 22,644 firm-years for 1,366 Indian firms from 1990 to 2015. The authors adopt ordinary least squares regression technique to model audit fee, and logistic regression technique to model auditor choice as a function of various factors relating to firm attributes and auditor characteristics.

This paper finds that auditors tend to charge an audit fee premium when they are affiliated to a Big 4 auditor, have industry specialization or jointly provide auditing and non-auditing services. Additionally, firms with larger boards, higher proportion of independent board of directors and CEO–Chairman separation are more likely to choose a Big 4-affiliated auditor. The results also suggest that financially distressed firms tend to pay significantly lower audit fees and are more likely to choose non-Big 4 auditors.

This paper is among the few studies which investigate how financial distress impacts the audit pricing and auditor choice decisions of a firm in the context of emerging economies. The findings of this paper raises serious concerns about the credibility of the audited financial statements and corporate governance mechanisms of firms undergoing financial distress. The empirical results of this paper have strong implications for practitioners, regulators and investors.

This paper aims to investigate the association between the composition of boards of directors and the choice of external auditor among companies listed on the Kuwait Stock Exchange (KSE) in 2013.

Consistent with prior research, audit quality is represented by two proxies, namely, a Big 4 and Non-Big 4 audit firm. Independence, diversity, interlocks, size and role duality are used as proxies for board composition. To accommodate the dichotomous dependent variable (auditor choice), a logistic regression model is used to test the hypothesized associations between board composition and auditor choice.

After controlling for firm-specific characteristics, results show that independence, diversity and size are statistically significant and increase the likelihood that a KSE-listed company selects a high-quality (Big 4) audit firm. Role duality is also statistically significantly but decreases the likelihood of choosing a Big 4 audit firm.

This research has implications for regulators, shareholders, boards and academics. The paper underlines the importance of the composition of the board in increasing the likelihood of hiring a high-quality audit firm. Regulators can draw upon these results when assessing the effectiveness of corporate governance mechanisms.

This paper is among the first to study the association between auditor choice and board composition using data from the frontier market of Kuwait, thus responding to the call for empirical research into the issue in less-developed markets. Overall, it sheds light on the effectiveness of board composition and provides empirical evidence that it is an important element in the choice of auditors. The findings indicate that board composition may be a mechanism that can promote demand for high audit quality.

The purpose of this paper is to test the relative strengths of efficiency and opportunistic considerations in making client auditor choice decisions in an emerging audit services market. The authors examine whether the degrees of foreign and institutional shareholdings, audit complexity, industry orientation (i.e. whether the firm belongs to the banking sector), ownership concentration in the hands of domestic sponsor shareholders, state ownership, power concentration in the hands of a CEO who is also the chairperson of the board, and audit risk affect the demand for superior monitoring by Big‐4 auditors.

The authors carry out a multivariate analysis using binary logit regression technique. They test whether efficiency or opportunism rules auditor choice of firms in their sample. Efficiency‐based variables used in the authors' models include foreign shareholding by a multinational parent, institutional shareholding, audit complexity and whether the firm belongs to the banking sector. Opportunism‐based variables include ownership concentration in the hands of domestic sponsor shareholders other than government, government shareholding, power concentration in the hands of a CEO who holds the position of chair as well, and audit risk.

The authors find that opportunistic considerations outweigh efficiency considerations in shaping auditor choice decisions in their sample. Two out of four efficiency arguments (foreign shareholdings in the hands of a multinational parent and institutional shareholding) support efficiency as the main driver of auditor choice while one (client belonging to the banking sector) indicates otherwise. On the other hand, three out of four opportunism arguments (government shareholding, CEO‐chair duality and audit risk) document opportunistic considerations to be the main forces behind auditor choice. The influence of foreign shareholding becomes apparent only when the foreign shareholder is the controlling shareholder.

This paper is the first of its kind to address auditor choice in an emerging market context. No other paper looked at auditor choice using efficiency‐opportunism incentives. The paper contributes to our understanding of auditor choice dynamics in emerging markets. The finding that institutional shareholding is associated with choice of high quality auditors is encouraging. Individual small investors can use institutional investors as a shield to protect their investment through the higher quality auditing linked to the presence of institutional investors.

This paper aims to examine how different types of corporate political connections (PCs) affect auditor choice decisions (and, therefore, audit quality) and audit opinions following the 2013 Egyptian uprising.

This paper utilizes a unique hand-collected dataset on the type of PCs of Egyptian listed companies from 2014 to 2019. Several analyses are employed to test the hypotheses, including logit regression, probit regression and generalized linear mixed models (GLMM). A number of additional analyses are conducted to ensure the robustness of the results, including the instrumental variables (IVs) probit models and propensity score matching (PSM).

The results show that firms' choice of auditor and audit opinion is heavily influenced by firms' PCs. Companies with PCs through boards of directors and major shareholders hire Big 4 audit firms to enhance corporate legitimacy; however, government-linked companies usually retain non-Big 4 audit firms to avoid increased transparency and to conceal improper activities, including tunneling and rent-seeking. Further, the results indicate that companies with PCs through boards of directors or major shareholders are more likely to receive favorable audit opinions, whereas government-owned businesses are less likely to receive such opinions.

This study provides additional evidence to policymakers that binding regulations and guidelines are necessary to oversee politically connected firms (PCFs) and to enhance governance and investor protection.

This study provides the first empirical evidence on how corporate PCs influence the choice of auditors and the opinions of audit firms in Egypt. This paper also sheds light on the impact of different types of corporate PCs on the choice of auditors and audit opinions.

The purpose of this paper is to examine what auditor and audit environmental attributes affect auditor appointment decisions in compulsory audit tendering, and whether the attributes affecting appointment of a new auditor (rotation) are consistent with or different from those affecting reappointment of the incumbent (retention).

New South Wales (NSW) local council finance managers were surveyed for importance ratings of 48 attributes. An hypothesis for differential ratings between rotators and retainers was formulated. Confirmatory factor analysis, tests of mean differences and logistic regression were used.

Consistent with the sample's high retention rate, the most important attributes for all respondents related to the quality of previous experience with the incumbent. Consistent with hypothesis, attributes proxying for a quality auditor (technical competence, independence and reputation) were more important for rotators.

The authors proxied rotation/retention by intention. Given the importance of audit quality attributes in the appointment decision and the high retention rate in compulsory audit tendering, future research could examine the relation between audit service quality attributes and retention.

This is the first study to examine attributes affecting auditor appointment decisions in a mandatory choice setting. NSW local councils provide a unique opportunity to do so as it is one of few jurisdictions in which compulsory audit tendering operates. Compulsory tendering may be implemented if current legislation aimed at improving audit independence and quality through mandatory partner rotation proves infeasible.

From an agency perspective, the authors investigate whether family ownership and control configurations are systematically associated with a firm's choice of auditor and audit fees. Agency theory is an economic theory that purposes the existence of a contract between two parties, principals and agents. Auditor choice and audit fees by family firms provide interesting insights given the unique nature of the agency problems faced by such firms.

The authors employ Big-4 auditors (PWC, KPMG, E&Y and Deloitte) as a proxy for high quality auditor (Big N) for the auditor choice model. For the audit fee model, the dependent variable is the natural logarithm of audit fees (LnAF). The authors use two measures for family firm as explanatory variables: (1) a dummy variable (FAM_Control), which equals one if the firm is classified as a family firm and (2) FAM_Ownership, which is an indicator variable with a value of one if a firm has family members who hold CEO position, occupy board seats, or hold at least 10% of the firm's equity. Data of Chinese listed firms from 2011 to 2021 are used. The authors adopt the Heckman (1979) two-stage model to mitigate the potential endogeneity issue involved in the selection of Big-N auditors.

The findings suggest that compared with non-family firms, Chinese family firms have a less tendency to employ Big-4 auditors due to less severe agency problems between owners and managers. Additionally, Chinese family firms sustain higher audit fees than non-family firms. Similar to the prior literature, however, Chinese family firms audited by Big-4 auditors incur lower audit fees than family firms audited by non-Big-4 auditors in this study. In contrast to young-family firms, old-family firms are less likely to pick top-tier auditors and sustain lower audit fees. Consistent and robust results are found from endogeneity tests and sensitivity analyses.

The empirical evidence provides a unique insight, for accounting practitioners, policymakers, family owners and other capital market participants concerning the diverse effects of various family ownership and control features on selecting high-quality auditors and audit fees. This study advances the understanding, showing that a lower demand for audit quality occurs in Chinese family firms as they encounter less severe Type I agency problems. However, the more severe Type II agency problems in Chinese family firms sustain higher audit fees due to higher audit risk and greater audit effort.

The purpose of this paper is examine whether agency conflicts between controlling and minority shareholders affect firms' decisions to purchase non‐audit services (NAS). The author examines whether client firms engage separate firms for audit and non‐audit functions, especially if the expected agency costs are high.

The sample consists of 772 firm‐year observations from Sweden where the ownership patterns are highly concentrated. The hypotheses are tested using multivariate regression analyses.

Empirical findings reveal that higher levels of agency cost proxies are significantly negatively related to both absolute and relative non‐audit fees but, at the same time, are significantly positively related to the level of outside consulting services purchased from non‐incumbent auditors. Together, these findings support the view that client firms are protecting the appearance of their auditor's independence.

One cannot rule out the possibility that there are some unspecified factors unrelated to auditor independence issues that affect both client firms' purchases of NAS and the level of outside consulting services purchased from non‐incumbent auditors.

The research findings have implications for the functioning of the audit and NAS markets. The increasing pressure on companies to improve the perception of their auditor independence by engaging separate auditors and consultants further limits the auditor choice decision.

This is the first paper that investigates whether agency conflicts between majority and minority shareholders affect firms' decisions to purchase NAS. This is also the first paper to examine determinants of purchases of NAS from non‐incumbent audit firms.