Non-Audit Services and Corporate Cash Holdings

Abstract

This study investigates whether non-audit services provided by auditors to their clients affect the clients’ cash policy. I hypothesize non-audit services are positively related to the level of corporate cash holding balances because they increase the cost of external funds and make firms rely more on internal funds for their funding needs. Consistent with my hypothesis, my findings show the positive relationship between non-audit service fees and corporate cash holdings. This study is important as it demonstrates non-audit services provided by auditors to their clients have effects beyond the clients’ financial reporting quality by affecting their crucial corporate financial policy.