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Do socially responsible firms demand high‐quality audits? An international evidence

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Listed:
  • Asif Saeed
  • Ammar Ali Gull
  • Asad Ali Rind
  • Muhammad Shujaat Mubarik
  • Muhammad Shahbaz

Abstract

This paper investigates whether corporate social responsibility (CSR) performance influences the demand for high‐quality audits in terms of audit effort measured by audit fee. Using a sample of listed firms from 20 developed countries across three regions, namely United States (US), United Kingdom (UK) and Europe (EU) over the period 2002–2016 and different measures of CSR performance (environmental and social), we find that socially responsible firms demand high‐quality audits from external auditors. Further analysis shows that this result is robust to the use of alternate samples, country and firm level governance systems, and endogeneity concerns. Taken together, these findings suggest that socially responsible attributes of being ethical, honest, trustworthy, and transparent while reporting financial results motivate firms to demand high‐quality audits in order to preserve their reputation or socially responsible image. The main implication of our findings is that the stakeholders may place greater confidence in the financial reports of socially responsible firms as they are likely to demand high‐quality audits.

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  • Asif Saeed & Ammar Ali Gull & Asad Ali Rind & Muhammad Shujaat Mubarik & Muhammad Shahbaz, 2022. "Do socially responsible firms demand high‐quality audits? An international evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 2235-2255, April.
    • Handle: RePEc:wly:ijfiec:v:27:y:2022:i:2:p:2235-2255
    DOI: 10.1002/ijfe.2270
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    2. Saeed, Asif & Alnori, Faisal & Yaqoob, Gohar, 2023. "Corporate social responsibility, industry concentration, and firm performance: Evidence from emerging Asian economies," Research in International Business and Finance, Elsevier, vol. 64(C).
    3. Gull, Ammar Ali & Atif, Muhammad & Ahsan, Tanveer & Derouiche, Imen, 2022. "Does waste management affect firm performance? International evidence," Economic Modelling, Elsevier, vol. 114(C).
    4. Muhammad Kashif Ali & Muhammad Khurram Zahoor & Asif Saeed & Safia Nosheen, 2023. "Moderating effect of vertical integration on the relationship between sustainability and performance: evidence from oil and gas energy sector," Future Business Journal, Springer, vol. 9(1), pages 1-11, December.

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