Corporate lobbying: Resource-seeking or rent-seeking? Evidence from audit fees

Steven Yik-Pui Low, Yee-Boon Foo and Ferdinand A Gul

Journal of Contemporary Accounting and Economics, 2023, vol. 19, issue 1

Abstract: Theory and prior research suggest that corporate lobbying is a primary means that corporations use to influence government policies either for improving firm performance (i.e., strategic decisions) or for rent-seeking activities (i.e., agency costs) but the evidence between lobbying activities and auditor assessments of audit risk remains unclear. Our results show that lobbying firms are associated with higher audit risks and fees, consistent with the idea that lobbying is related to rent-seeking and higher agency costs. In cross-sectional analyses, we find that the positive association between lobbying and audit fees is weaker for firms with strong corporate governance. Further analysis shows that firm financial returns or low earnings quality mediate the relationship between lobbying and audit fees. The results suggest that practitioners, users of financial statements and regulators could benefit by recognizing that lobbying activities could signal managerial opportunistic behavior.

Keywords: Corporate lobbying; Audit fee; Audit risk; Independent board; Female director; Audit committee; Earnings management (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocaae:v:19:y:2023:i:1:s1815566922000364

DOI: 10.1016/j.jcae.2022.100341

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Journal of Contemporary Accounting and Economics is currently edited by Agnes C.S. Cheng, P. Clarkson, F.A. Gul, Zoltan Matolcsy, Dan Simunic and Ben Srinidhi

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