Independent Media and Audit Quality

We examine the relation between media independence and audit quality across countries. By discovering and disseminating information about audit quality to the public, independent media facilitate public monitoring of auditor performance. We hypothesize that media independence, measured by private ownership versus government control, enhances audit quality. Using a comprehensive sample from thirty seven countries, we report evidence that audit quality, measured by a firm's likelihood of receiving a modified audit opinion, abnormal accruals, and the likelihood of loss reporting, is higher in countries with higher private media ownership, controlling for other determinants of audit quality. We also find that the effect of independent media on audit quality is stronger for Big Four audit firms than for non-Big-Four firms. We report evidence that strict securities law enforcement strengthens the effect of media monitoring on audit quality. The results are consistent with economic theories of the provision of audit quality through the reputation and litigation incentives (Ball 2001; Bolton et al. 2012; Shapiro 1983).