Caste Primacy of Auditor Choice and Independence

Ajit Dayanandan (), Han Donker (), John Nofsinger and Rashmi Prasad ()
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Ajit Dayanandan: College of Business and Public Policy, University of Alaska Anchorage, USA
Han Donker: College of Business, Central Washington University, USA
John Nofsinger: College of Business and Public Policy, University of Alaska Anchorage, USA
Rashmi Prasad: School of Business, Truman State University, USA

The International Journal of Accounting (TIJA), 2020, vol. 55, issue 04, 1-32

Abstract: We examine the caste affiliation of the auditor selected by the corporate boards of directors of Indian firms. The history of the caste system in India is one of discrimination and inequity. The constitutionally mandated quota system in the public sector has shown improvements, but has not trickled into private sector leadership. We find that nearly 96% of Indian corporate boards are dominated by a single caste. The auditing firms are also dominated by the forward castes. Lastly, we find that when boards are dominated by one caste, they select an auditing firm that is also affiliated with that same caste. We examine the board and auditor relationship because they both play an important monitoring role in corporate governance. However, auditor effectiveness can be undermined when there is a lack of independence between them and the firm. The existence of a strong shared social network like caste affiliation compromises that independence.

Keywords: Caste; India; corporate boards; auditor (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1142/S1094406020500171

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