The effect of political connections on firms' auditor choice decisions and audit opinions: evidence from Egypt

Tantawy, S. and Moussa, T. 2023. The effect of political connections on firms' auditor choice decisions and audit opinions: evidence from Egypt. Asian Review of Accounting. 31 (3), pp. 414-436. https://doi.org/10.1108/ara-07-2022-0161

TitleThe effect of political connections on firms' auditor choice decisions and audit opinions: evidence from Egypt
TypeJournal article
AuthorsTantawy, S. and Moussa, T.
AbstractPurpose – This paper aims to examine how different types of corporate political connections (PCs) affect auditor choice decisions (and, therefore, audit quality) and audit opinions following the 2013 Egyptian uprising. Design/methodology/approach – This paper utilizes a unique hand-collected dataset on the type of PCs of Egyptian listed companies from 2014 to 2019. Several analyses are employed to test the hypotheses, including logit regression, probit regression and generalized linear mixed models (GLMM). A number of additional analyses are conducted to ensure the robustness of the results, including the instrumental variables (IVs) probit models and propensity score matching (PSM). Findings – The results show that firms’ choice of auditor and audit opinion is heavily influenced by firms’ PCs. Companies with PCs through boards of directors and major shareholders hire Big 4 audit firms to enhance corporate legitimacy; however, government-linked companies usually retain non-Big 4 audit firms to avoid increased transparency and to conceal improper activities, including tunneling and rent-seeking. Further, the results indicate that companies with PCs through boards of directors or major shareholders are more likely to receive favorable audit opinions, whereas government-owned businesses are less likely to receive such opinions. Research limitations/implications – This study provides additional evidence to policymakers that binding regulations and guidelines are necessary to oversee politically connected firms (PCFs) and to enhance governance and investor protection. Originality/value – This study provides the first empirical evidence on how corporate PCs influence the choice of auditors and the opinions of audit firms in Egypt. This paper also sheds light on the impact of different types of corporate PCs on the choice of auditors and audit opinions.
KeywordsResearch Paper
Political connections
Auditor choice
Audit opinions
Propensity score matching
Emerging markets
Egypt
JournalAsian Review of Accounting
Journal citation31 (3), pp. 414-436
ISSN1321-7348
Year2023
PublisherEmerald Publishing Limited
Accepted author manuscript
License
CC BY 4.0
File Access Level
Open (open metadata and files)
Digital Object Identifier (DOI)https://doi.org/10.1108/ara-07-2022-0161
Publication dates
Published online13 Feb 2023
Published in print15 Jun 2023
LicenseCC BY 4.0

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