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The cost of sin: The effect of social norms on audit pricing

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  • Leventis, Stergios
  • Hasan, Iftekhar
  • Dedoulis, Emmanouil

Abstract

In this paper we provide evidence for the effects of social norms on audit pricing by studying companies belonging to the alcohol, firearms, gambling, military, nuclear power, and tobacco industries, which are often described as “sin” companies. We hypothesize that the disparities between “sin” firms operations and prevailing social norms create an adverse context which heightens the client's business risk assessment by auditors and is, thereby, reflected in the pricing decisions for audit and consulting services. Having controlled for the impact of variables relating to client attributes, auditor attributes and engagement attributes, we demonstrate that audit firms charge significantly higher audit and consulting fees to companies that deviate from prevailing social norms. Additionally, we show that audit pricing levels within the “sin” group depend both on prevailing political views and on the level of “vice” exhibited by “sin” companies.

Suggested Citation

  • Leventis, Stergios & Hasan, Iftekhar & Dedoulis, Emmanouil, 2013. "The cost of sin: The effect of social norms on audit pricing," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 152-165.
  • Handle: RePEc:eee:finana:v:29:y:2013:i:c:p:152-165
    DOI: 10.1016/j.irfa.2013.03.006
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    1. repec:eee:jiaata:v:30:y:2018:i:c:p:106-116 is not listed on IDEAS
    2. repec:kap:jbuset:v:148:y:2018:i:1:d:10.1007_s10551-015-3001-x is not listed on IDEAS
    3. repec:eee:accfor:v:38:y:2014:i:3:p:155-169 is not listed on IDEAS
    4. repec:eee:mulfin:v:42-43:y:2017:i::p:1-10 is not listed on IDEAS
    5. Grougiou, Vassiliki & Dedoulis, Emmanouil & Leventis, Stergios, 2016. "Corporate Social Responsibility Reporting and Organizational Stigma: The Case of “Sin” Industries," Journal of Business Research, Elsevier, vol. 69(2), pages 905-914.
    6. repec:kap:jbuset:v:143:y:2017:i:4:d:10.1007_s10551-016-3072-3 is not listed on IDEAS

    More about this item

    Keywords

    Social norms; Audit pricing; Controversial industries; Sin companies;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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