Geographic Proximity between Auditor and Client: How Does it Impact Audit Quality?

By Jong-Hag Choi, Jeong‐Bon Kim, Annie A. Qiu, Yoonseok Zang. 2012

261 citations recorded by the source corpus.

SUMMARY:  Using a large sample of audit client firms, this paper investigates whether and how the geographic proximity between auditor and client affects audit quality proxied by accrual-based earnings quality. We define an auditor as a local auditor (1) if the auditor's practicing office is located in the same metropolitan statistical area (MSA) as the client's headquarters, and (2) if the geographic distance between the two cities where the auditor's practicing office and the client's headquarters are located is within 100 kilometers, or they are in the same MSA. As predicted, our empirical results are consistent with local auditors providing higher-quality audit services than non-local auditors. In addition, as predicted, this quality difference is weakened for diversified clients with more operating or geographic segments. The results are robust to a variety of sensitivity checks. Overall, our evidence suggests that informational advantages associated with local audits enable auditors to better constr...

Subfields: Accounting, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/7d31c86da7b091e4275dffaeca76f17f92d5a183

Citations in the corpus

• Employee Quality and Financial Reporting Outcomes (2017, unknown): “Specifically, research suggests auditors (Choi et al. 2012), the SEC (Kedia and Rajgopal 2011), security analysts (Yu 2008), and institutional ownership (Ayers, Ramalingegowda, and Yeung 2011) are all associated with financial reporting quality.”
• Does a Lack of Choice Lead to Lower Quality?: Evidence from Auditor Competition and Client Restatements (2013, unknown): “Third, the majority of firms are audited by auditors located in the same area (Choi et al. 2012).”