This study examines the association between audit firms’ media coverage and audit fees.
The authors use novel data of audit firms’ media coverage obtained from the search engine Sogou. The relationship between audit firm’s media coverage and audit fees is investigated. Validity and mechanism analyses are also conducted.
The authors find a positive relationship between audit firms’ media coverage and audit fees, irrespective of the media coverage tone. The effect is more pronounced for clients of greater economic importance, audit firms with larger sizes and nearer to security regulation agencies. Mechanism analysis shows that media coverage strengthens audit effort, audit quality and audit independence. Media coverage makes audit firm shrink audit service supply and withdraw from high perceived-risk clients. Overall, media coverage plays a disciplining role in audit firms by raising their risk awareness.
Different from prior literature focusing on clients’ media coverage, this study is the first to empirically examine the relationship between audit firms’ media coverage and audit fees. The results enhance our understanding of the monitoring role of media coverage on audit firms. The mechanism through which audit firms’ media coverage functions is also revealed.
