Drought risk and audit pricing: a mixed-methods study

Amin Sarlak, Mehdi Khodakarami, Reza Hesarzadeh, Jamal A. Nazari and Fatemeh Taghimolla

Asian Review of Accounting, 2024, vol. 32, issue 5, 862-888

Abstract: Purpose - Climate change has led to a rise in the frequency, intensity and scope of droughts, posing significant implications for businesses. This study examines the impact of local community drought levels on audit pricing. Additionally, it explores the moderating effects of high-tech industries, auditor busyness and the level of local community concern regarding the drought crisis. Design/methodology/approach - This study employs a mixed-methods approach to rigorously test the research hypotheses. The quantitative phase of the study utilizes a sample of 1,278 firm-year observations from Iran’s capital market. For the analysis of the quantitative data, ordinary least squares regression with clustered robust standard errors is used. Additionally, this research supplements its quantitative findings with qualitative evidence obtained through semi-structured interviews with 19 Iranian audit partners. Findings - The results suggest that firms operating in provinces facing severe droughts experience notably higher audit fees. Furthermore, the positive relationship between drought and audit fees is weakened when auditors are busy, local community concern regarding the drought crisis is high or the firm operates within high-tech industries. These findings are supported by a range of robustness checks and qualitative evidence gathered from the field. Originality/value - This research contributes to the growing literature on climate change by examining the influence of local community drought levels on audit pricing within an Iranian context. Additionally, our study sheds light on how high-tech industries, auditor workload and the level of local community concern regarding the drought crisis moderate the relationship between drought and audit fees. Importantly, our study pioneers in providing mixed-methods evidence of the association between drought severity and audit fees.

Keywords: Drought; Climate change; Audit risk; Audit fees (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:arapps:ara-10-2023-0294

DOI: 10.1108/ARA-10-2023-0294

Access Statistics for this article

Asian Review of Accounting is currently edited by Prof. Haiyan Zhou

More articles in Asian Review of Accounting from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().