This paper aims to explore how inter-regional online social interactions via internet platforms influence firms’ choices of nonlocal auditors and to identify the underlying mechanisms. In addition, the second purpose is to examine the economic consequences of online social interactions on audit quality.
The analysis is based on a sample of firms listed on the Shanghai and Shenzhen Stock Exchanges during the period 2008–2016.
The results suggest that firms are more likely to select auditors from provinces with which they maintain stronger online social connections. Mechanism analysis indicates that these interactions primarily facilitate nonlocal auditor selection by reducing information search and processing costs. Additionally, the study reveals a stronger positive correlation when firms and auditors have higher social trust or when they are closer in location or language. Finally, we show the governance effect of inter-regional online social interactions on audit quality.
The study highlights the impact of inter-regional online social interactions on firms’ choice of nonlocal auditors, contributing to the existing literature in several ways. First, the study enhances our understanding of how online social interactions influence auditor selection by demonstrating their impact on corporate audit service engagement, an area known for its complex industry expertise. Second, it expands research on auditor choice by examining the firms’ nonlocal auditor choice from the perspective of inter-regional online social interactions. Finally, our results provide evidence for understanding how online social interactions can alleviate the information costs associated with geographical distance and shape corporate choices.
