Title : Does Auditor Ethnicity Matter in Determining Audit Fees? Some Empirical Evidence from Indonesia
Authors:
- Suham Cahyono
- Harymawan Faith
- Damara Ardelia Kusuma Wardani
- Khairul Anuar Kamarudin
Department : Accounting
Journal Name : Accounting Research Journal
Kinds of Journal:
Keywords : audit fee, audit partner ethnicity, governance, multiculturalism
Abstract:
Purpose
This study aims to investigate the presence of the audit partner ethnicity on audit fees within the Indonesian context.
Design/methodology/approach
The sample consists of 803 firm-year observations from the indonesia stock exchange during the period of 2014-2018. The study uses Fixed-Effect Regression Analysis to Examine the relationship between Audit Partner Ethnicity and Audit Fees.
Findings
This study reveals that firms audited by audit partners from the main ethnic group demonstrate lower audit fees, indicating a more extensive audit business network for this particular group of auditors comparated to those from minority ethnic groups. Particularly, the study find that firms audited by audit partners from the three largest ethnicities, namely, balinese, javanese and West Sumatrase, are associated with lower audit fees comparated to others. These Finding Further Contributes to the existing narrative and literature that highlight the ethnic background of audit partners as a form of social capital that influences lower audit fees.
Research limitations/implications
This Study Provides Valuable Practical and Academic Implications Regarding the Impact of Audit Partner Ethnicity on Audit Fees. The Findings Highlight the importance for audit firms to strive for a balaced representation of ethnic diversity in their auditor characteristics, as it can be positively influence both governance and marketing strategies. By recognizing and addressing the significance of ethnic diversity among audit partners, firms can enhance their overall effectiveness and success in the auditing profession.
Originality/value
This Study Makes a Unique Contribution by Providing Empirical Data on Audit Pricing Theory in Indonesia, Specifically Focusing on the Role of Ethnic Diversity as a Determinant of Audit Pricing. Previous Research has not extensively Explored the Connection between Auditors Ethnicity and Audit Fees, Particularly in Relation to the Business Network as a Channel Mechanism. The Theoretical Explanations for the Fee Differentials have also been limited in prior studies. The current study address this gap by offering a theoretical basis that highlights the advantage of the dominant ethnic group in establishing an efficient audit market system. Consequently, these auditors are able to charge lower fees to clients without compromising on the quality of their services. This Finding Aligns with the existing literature on audit fees and underscores the importance of the main ethnic group in fostering an effective audit market, resulting in lower audit fees comparated to mixed audit markets.
For Details : https://www.emald.com/insight/content/doi/10.1108/arj-09-2022-0231/Full/html
