Does the Media as a Watchdog Affect Auditors’ Decisions?

Abstract

Our paper investigates the information intermediary role of the media from the perspective of auditors. Using negative media coverage as the proxy variable for the watchdog role of the media, our investigation finds that the probability of issuing a modified audit opinion increases when the company has been the subject of negative media coverage and that negative media coverage significantly affects the change of certified public accountant (CPA) firm but does not significantly affect audit fees. In sum, the media as a watchdog affects auditors’ decisions to some extent, and our findings suggest that the media serves as an important information intermediary from the perspective of auditors. We suggest that the hypotheses of risk aversion and saving audit costs explain these findings very well.