The Impact of Religiosity on Audit Pricing

Stergios Leventis (), Emmanouil Dedoulis () and Omneya Abdelsalam ()
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Stergios Leventis: International Hellenic University
Emmanouil Dedoulis: Athens University of Economics and Business
Omneya Abdelsalam: Mill Hill Lane

Journal of Business Ethics, 2018, vol. 148, issue 1, No 5, 53-78

Abstract: Abstract Prior literature has demonstrated that religiosity is associated with a reduced acceptance of unethical business practices and financial reporting irregularities. On this premise, we examine whether religiosity, conceptualized as the degree of adherence to religious norms in the geographical area where a firm’s headquarters is located, has an impact on audit firms’ pricing decisions in the US. We measure the intensity of religiosity by the number of adherents relative to the total population in a county and demonstrate that increased religious adherence operates as an institutionalized monitoring mechanism that decreases audit risk and audit costs, which is, in turn, reflected in reduced audit pricing. Additional tests suggest that the impact of religiosity on auditors’ pricing decisions is not differentiated by levels of auditor expertise but that audit fees are determined by an auditor’s relative location in a market sector and religious adherence. We conclude that religious adherence reduces the need for shareholders to bear the costs of monitoring agents, a finding which could be of importance for market participants and regulators.

Keywords: Agency costs; Audit fees; Audit pricing; Religiosity (search for similar items in EconPapers)
JEL-codes: G21 G30 G34 G38 M41 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (33)

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DOI: 10.1007/s10551-015-3001-x

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