Abstract
This study examines the effect of social capital on audit fees, audit hours, and audit quality. Using a sample of Korean public firms for the period of 2013-2017, we find that firms headquartered in areas with high social capital pay less audit fees and spend less audit hours. However, we observe that audit quality does not change. Thus, we document that auditors charge a premium when firms are headquartered in areas with low social capital, indicating that the audit fee premium is due to the tendency to maintain the reasonable level of assurances in areas with low social capital. In addition, the negative relation between social capital and audit fees is stronger for firms located in metropolitan areas. Overall, this study contributes to our understanding in the currently growing audit literature by documenting how social capital affects auditors’ decision in audit fees, audit hours, and audit quality.
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