The Effects of Corporate Social Responsibility Reporting on Audit Quality, Financial Performance, Audit Committee Quality, Auditor Tenure, and Auditor Dismissal

Previous CSR studies have examined the financial benefits of corporate social responsibility (CSR) or theories of CSR including stakeholder or legitimacy theory (Cho & Patten, 2007; Woller, 2007). Relative to companies not filing CSR reports, companies filing the reports obtain financial benefits (Lev, Pertrovits, and Radhakrishnan, 2010), experience improved reputation (Toms, 2002), face less financial risk (Orlitzky and Benjamin, 2001), and observe higher earnings (accruals) quality (Kim, Park, & Wier, 2012; Pyo & Lee, 2013). Further, internal control weaknesses, financial restatements, and discretionary accruals have been reported to lead to low audit quality and increased financial risk (Ashbaugh-Skaife, Collins, & Kinney, 2007). Prior studies suggest that audit committee quality and auditor tenure are positively related to audit quality (Geiger and Raghunandan, 2002; Lin and Wang, 2010). In addition, companies may dismiss their auditors to reduce fees (Gul, Fung, & Jaggi, 2009), engage in audit opinion shopping (Lu & Sivaramakrishnan, 2009), or avoid disagreements on accounting principles (Turner, Williams, & Weirich, 2005), reported internal control weaknesses or financial restatements (Ettredge, Li, & Scholz, 2007). These reasons are all considered shortterm solutions and are in contrast to the benefits of increased auditor tenure (Geiger & Raghunandan, 2002).;The present study builds on prior research by identifying companies filing and those not filing CSR reports to examine the impact on audit quality, financial performance, audit committee quality, auditor tenure, and auditor dismissal. The findings show that compared to companies not filing CSR reports, those filing the reports have higher auditor quality (i.e., lower discretionary accruals and fewer financial restatements and internal control weaknesses), higher audit committee quality (more financial experts and members on the audit committee), longer auditor tenure, better financial performance (i.e., less net loss and higher return on assets), lower auditor dismissal (i.e., increased likelihood of having only one audit firm during the companies' inception). Companies filing CSR reports have larger total assets and are more likely to have a Big 4 audit firm since their inception than those not filing the reports. Overall, the findings support stakeholder rather than legitimacy theory of CSR reporting. Stakeholder theory is supported by the benefits to stakeholders such as increased audit quality, strong financial performance, high audit committee quality, increased auditor tenure, and decreased auditor dismissal.