Impact of drinking cultures on audit fees: Improving communication, familiarizing with clients, or facilitating bribery?

Jianhua Tan, Wen Li and Tao Chen

International Review of Financial Analysis, 2025, vol. 107, issue C

Abstract: This study investigates whether the drinking culture of a firm's location influences audit pricing. Using a sample of Chinese firms and employing alcohol consumption and production data as proxies for drinking culture, we find that auditors, on average, charge lower fees to clients headquartered in regions with stronger drinking traditions. This result remains robust across multiple tests, including alternative measures, different model specifications, controls for other cultural factors, and an instrumental-variable approach. The evidence suggests that drinking-facilitated business relationships lead auditors to underestimate engagement risk and reduce audit effort, ultimately resulting in lower audit fees.

Keywords: Drinking culture; Business relationship; Audit fees; Audit risk; Audit effort (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:107:y:2025:i:c:s1057521925006921

DOI: 10.1016/j.irfa.2025.104605

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