Social trust and the demand for audit quality

Our study explores the association between social trust and the demand for audit quality. We argue that social trust reduces the demand for audit quality because it mitigates agency problems. By exploring Chinese listed firms, we find that firms in regions with higher social trust are less likely to choose big auditors, suggesting that higher social trust is associated with lower demand for audit quality. This finding arises because social trust disciplines managers by creating norms and relational networks to constrain opportunistic behaviors. Moreover, firms in high-trust regions have higher financial reporting quality, and the influence of social trust is more pronounced for firms with severer agency problems. Our results suggest that social trust allows firms to rely less on quality audits. [Display omitted] •Our study explores the association between social trust and the demand for audit quality.•Firms in regions with higher social trust are less likely to choose big auditors.•Our finding arises because social trust disciplines managers by creating norms and networks.