Do Ethnic Minority Audit Partners Face Discrimination? Evidence From the Australian Audit Market

Abstract

The professional literature has provided evidence of discrimination against ethnic minority professionals in a number of research contexts, including law, architecture, construction, and health care. However, research on ethnicity-based discrimination in the accounting profession has been sparser and has generally relied on ethnic minorities’perceptions of discrimination rather than actual discrimination. In this study, we complement and extend this research by investigating whether ethnic minority audit partners are associated with lower audit fees than nonethnic minority audit partners. We also consider whether the association between ethnicity and audit fees depends on the status of the audit firm in which audit partners work. We find that ethnic minority audit partners are associated with lower audit fees and that this holds true only when they work in lower-status audit firms. Supplementary analyses carried out on our data suggest that discrimination is more likely to be performed by audit clients than by audit firms as we do not find evidence that audit firms systematically and selectively allocate ethnic minority audit partners to clients with specific characteristics (e.g., potentially less lucrative clients). Our study contributes to the literature on ethnicity-based discrimination in the accounting profession, to the literature on professional stereotypes, and to the audit pricing literature.

JEL Classification: C33, J71, M42.