Abstract
AbstractI investigate the impact of the disruption of free information access via search engines on audit fees using a quasi‐natural experiment provided by Google's withdrawal from China. Employing a difference‐in‐differences design, I document an increase in audit fees for firms with overseas business relative to firms without overseas business after Google's withdrawal. The results are robust to matched samples, placebo tests, alternative specifications, excluding alternative explanations and different event windows. This trend in audit fees suggests that Google's withdrawal hampers firms' foreign information streams and increases audit risk and audit effort. Consistent with this argument, after Google's withdrawal, firms with overseas business conduct more earnings management, pay more abnormal audit fees and experience longer audit report lags. Furthermore, the increase in audit fees is greater for firms with poor information environments, more retail investors or non‐Big 4 auditors. My findings suggest a potential auditing cost of restricting the free flow of public foreign information about firms.
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