Politically connected audit committee and audit risk: Evidence from a quasi‐experiment

Abstract We present evidence that auditors consider audit committees with political connections in their audit pricing decisions. Our tests exploit Document 18 released in China in 2013 as a quasi‐experiment where government officials are required to resign from serving as independent directors in Chinese publicly listed firms. We identify 2862 treatment firms whose audit committees immediately lost political connections due to the exogenous shock imposed by Document 18. Our difference‐in‐differences analyses show that treatment firms incur significant audit fees increases after Document 18. Overall, our findings support the view that external auditors perceive client firms whose audit committees possess political connections as of lower audit risk.