Culture and auditor choice: A test of the secrecy hypothesis

The purpose of this study is to investigate whether firms’ auditor choice relates to national culture. We construct a novel measure of secretiveness based on Hofstede [Hofstede, G., 1980. Culture’s Consequences: International Differences in Work Related Values. Sage Publications, Beverly Hills, CA] cultural factors. Using a very large sample of firms from 37 countries and controlling for a number of firm- and country-level factors, we find that firms in “more secretive” countries are less likely to hire a Big 4 auditor. We also document that the relation between secrecy dimension of national culture and auditor choice is mitigated by the firms’ degree of internationalization. These results establish a link between national culture and financial reporting quality through the firm’s choice of auditor.