Will auditors charge more for corporate philanthropy? Evidence from China

Abstract

AbstractThis study examines the relationship between corporate philanthropy (CP) and audit fees. Using corporate donation data from China, our investigation finds that CP is significantly positively associated with audit fees. Resource‐seeking purpose and the enhanced publicity effect may be plausible channels behind this relationship. We further find that the frequency and intensity of donations reinforce this positive association. Additional analysis reveals that the resource‐seeking effect exists in any type of enterprise, while the enhanced publicity effect only exists in non‐SOEs. Our main results remain robust to a battery of additional tests. Overall, our findings suggest that by increasing audit workload and prospective audit risk, CP could make auditors more conservative such that they charge a higher audit fee. This article emphasizes the dialectic institutional stakeholder perspective in understanding the economic consequences of CP. Both the theoretical contributions and practical implications of these findings are discussed.