Government-background customers, audit risk and audit fee

Abstract

Based on the 2007–2015 customer data of listed firms, this paper studies the impact in China of customers with a government background on the audit fee from the perspective of supply chain. It is claimed to be the first time this impact has been studied. The results indicate that the presence of a government-background customer helps to reduce the audit fee significantly. Moreover, the relationship is more evident when the customer is stable or comes from the central government, and we can also observe a stronger relationship under high financial constraints. Finally, the paper also shows that the existence of a government-background customer can effectively alleviate an enterprises’ audit risk, thus reducing the audit fee.