Board Ethics and Auditor Choice – International Evidence

Abstract

This study examines whether firms' auditor choice relates reflects the strength of board ethics. Using a large sample of firms 132,853 firm year observations from forty-six countries around the globe. and controlling for a number of firm- and country-level factors, we find that firms in countries where “high board ethical values” prevail are more likely to hire a Big 4 auditor. We also find that the relation between board ethical values and auditor choice is mitigated by the firm's board size. These results establish an indirect link between board ethics and financial reporting quality through the firm's choice of auditor.