The Geography of REIT Audit Service Investments

We examine the geographic component of the audit service investments in REIT industry. Because REIT firms have strong incentive for information transparency and high audit quality, we expect that geographic distances, as a proxy for information flow, between REIT firms, their auditors, and the SEC offices have effects on the audit fees and non-audit fees paid by REIT firms. We find that 1) REIT firms pay more audit fees and non-audit fees to their auditor when the REIT firm headquarters are located closer to the SEC offices. 2) REIT firms pay higher audit and non-audit fees when their auditor offices are closer to the SEC. 3) REIT firms pay higher audit fees and non-audit fees when their auditor offices are located closer to their headquarters. 4) REIT firms that are closest to both the SEC and the auditors pay the highest fees in both audit services and non-audit services. The results are consistent with our expectation that REIT firms desire high quality audit service and are willing to pay higher fees for it. Also, REIT industry may enjoy the knowledge spillovers between audit side and non-audit side and the industry specialization from their auditors