Organized labor and audit fees

SYNOPSIS: This study investigates the empirical relationship between organized labor and audit fees. We find that audit fees are negatively related to the firm-level unionization rate—the higher the unionization rate, the lower the audit fees. We further observe that the unionized firms are less likely to hire Big 4 or industry-specialist auditors. Additional analyses show that the negative relationship between the firm-level unionization rate and audit fees is significantly attenuated for unionized firms with poor financial performance. Our results are consistent with unionized firms preferring less audit scrutiny, which helps them maintain information asymmetry with the labor unions. The study facilitates our understanding of firms’ demand for audit services and the consequential effect on audit fees when faced with strong organized labor, and adds to the extant literature investigating the impact of organized labor on various aspects of firms’ financial reporting decisions.