Mohammad Badrul Muttakin

We examine whether corporate political donations (CPDs) are associated with audit fees in the Australian setting. Our baseline results based on observations of Australian top 500 non‐financial companies show that, on average, firms with CPDs are associated with about 9% lower audit fees than firms without CPDs consistent with the strategic investment or resource dependency view. Using path analysis, we next show that high earnings quality resulting from strategic benefits of CPDs explains the association. Overall, these results confirm that firms use CPDs as strategic investments that are associated with lower earnings management, which leads to lower audit risk and hence reduced audit fees.