Political connections, related party transactions, and auditor choice

evidence from Indonesia

Ahsan Habib*, Abdul Haris Muhammadi, Haiyan Jiang

*Corresponding author for this work

Research output: Contribution to journalArticle

22 Citations (Scopus)

Abstract

This paper investigates how political connections in concert with related party transactions (RPTs) determine auditor choice in Indonesia. Our study is motivated by conflicting findings in the literature on whether politically connected firms appoint reputable auditors (Big 4 auditors). On one hand, politically connected firms are less likely to appoint Big 4 auditors if they wish to cover up RPT-related tunneling activities by providing financial statements that fail to reflect their true economic performance. On the other hand, politically connected insiders who refrain from self-dealing would prefer higher-quality financial reporting and, hence, appoint Big 4 auditors. Using data from Indonesia, we find support for the former. By documenting the role of RPTs as a motivating factor for politically connected firms to choose non-Big 4 auditors, we enrich the political connection and auditor choice literature.

Original languageEnglish
Pages (from-to)1-19
Number of pages19
JournalJournal of Contemporary Accounting and Economics
Volume13
Issue number1
DOIs
Publication statusPublished - 1 Apr 2017
Externally publishedYes

Keywords

  • Auditor choice
  • Indonesia
  • Political connections
  • Related party transactions (RPTs)

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