Pay for Security: Auditor Risk Response in China’s Anti Corruption Campaign

Abstract

We take China’s anti-corruption campaign as an exogenous shock to test the auditor risk response under political uncertainty. Using multiple DID approach, we use 16207 hand-collected observations from 2207 firms from Central Commission for Discipline Inspection (CCDI) showing that audit fee increases after CCDI visits the firms. The effect is more pronounced in SOE; in the firms audited by non-big four accounting firms; in the political cycling industries and in the firms that change auditors. Furthermore, we explore the effect is pronounced in the regions where the provincial officials are investigated and in the political cycle industry.