WHISTLE-BLOWER PROTECTION LAWS AND AUDIT FEES: CROSS-COUNTRY EVIDENCE FROM EMERGING ASIA

Abstract

Whistle-blower protection laws have gained prominence in shaping corporate governance, offering safeguards for employees who expose organizational wrongdoing. In the context of emerging Asian markets, such laws are increasingly influencing corporate auditing practices, particularly audit fees. This paper explores the relationship between whistle-blower protection laws and audit fees across emerging Asian economies, a region characterized by varying levels of institutional maturity and enforcement mechanisms. Our study leverages cross-country data and a panel dataset covering 10 emerging Asian countries from 2015 to 2023. Using a difference-in-differences (DiD) approach, we examine whether the introduction of stronger whistle-blower protection laws correlates with changes in audit fees. Theoretical insights are drawn from agency theory, focusing on the cost-benefit analysis firms undergo when complying with regulations that aim to mitigate information asymmetry. We also integrate the concept of resource orchestration theory, recognizing how firms strategically allocate resources, including auditing costs, in response to institutional pressures. Our findings suggest a significant positive relationship between enhanced whistle-blower protection and audit fees, indicating that stronger whistle-blower laws increase the perceived risk of financial misconduct, prompting higher demand for thorough audits. This study contributes to the behavioral operations and governance literature by linking regulatory changes with auditing practices in emerging markets.

Keywords: Whistle-blower protection laws, Audit fees, Agency theory, Emerging Asia, Corporate governance, Institutional theory