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

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.