Geographic proximity between auditor and client : How does it impact audit quality?

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)43-72
Journal / PublicationAuditing: A Journal of Practice & Theory
Issue number2
Publication statusPublished - May 2012


Using a large sample of audit client firms, this paper investigates whether and how the geographic proximity between auditor and client affects audit quality proxied by accrual-based earnings quality. We define an auditor as a local auditor (1) if the auditor's practicing office is located in the same metropolitan statistical area (MSA) as the client's headquarters, and (2) if the geographic distance between the two cities where the auditor's practicing office and the client's headquarters are located is within 100 kilometers, or they are in the same MSA. As predicted, our empirical results are consistent with local auditors providing higher-quality audit services than non-local auditors. In addition, as predicted, this quality difference is weakened for diversified clients with more operating or geographic segments. The results are robust to a variety of sensitivity checks. Overall, our evidence suggests that informational advantages associated with local audits enable auditors to better constrain management's biased earnings reporting, with greater advantages for less diversified clients.

Research Area(s)

  • Audit quality, Auditor locality, Diversification, Geographic proximity

Bibliographic Note

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