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State ownership, the institutional environment, and auditor choice: Evidence from China

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  • Wang, Qian
  • Wong, T.J.
  • Xia, Lijun
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    Abstract

    This paper finds that compared with non-state-owned firms, Chinese state-owned enterprises controlled by province, city, and county governments (local SOEs) are more likely to hire small auditors within the same region (small local auditors). In regions with less developed institutions, SOEs controlled by central government (central SOEs) also have such a tendency. However, the tendency of local and central SOEs to hire small local auditors is attenuated as the institutions develop. This auditor choice pattern is likely to be explained by SOEs' lack of demand for large or non-local auditors, small local auditors' superior local knowledge, and SOEs' collusion incentives.

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    File URL: http://www.sciencedirect.com/science/article/B6V87-4S85DBP-1/2/c28d4d9a46a8f3c4bd928610d8d2f02a
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Accounting and Economics.

    Volume (Year): 46 (2008)
    Issue (Month): 1 (September)
    Pages: 112-134

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    Handle: RePEc:eee:jaecon:v:46:y:2008:i:1:p:112-134

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    Web page: http://www.elsevier.com/locate/jae

    Related research

    Keywords: Auditor choice State ownership Institutions Corporate governance Transition economies;

    References

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    Cited by:
    1. Kangtao Ye & Ran Zhang, 2011. "Do Lenders Value Corporate Social Responsibility? Evidence from China," Journal of Business Ethics, Springer, vol. 104(2), pages 197-206, December.
    2. Ding, Mingfa & Nilsson, Birger & Suardi, Sandy, 2013. "Foreign Institutional Investors and Stock Market Liquidity in China: State Ownership, Trading Activity and Information Asymmetry," Knut Wicksell Working Paper Series 2013/14, Knut Wicksell Centre for Financial Studies, Lund University.
    3. Firth, Michael & Rui, Oliver M. & Wu, Xi, 2012. "How Do Various Forms of Auditor Rotation Affect Audit Quality? Evidence from China," The International Journal of Accounting, Elsevier, vol. 47(1), pages 109-138.
    4. Jihong Liu & Yaping Wang & Liansheng Wu, 2011. "The Effect of Guanxi on Audit Quality in China," Journal of Business Ethics, Springer, vol. 103(4), pages 621-638, November.
    5. Liu, Xiaohui & Lu, Jiangyong & Chizema, Amon, 2014. "Top executive compensation, regional institutions and Chinese OFDI," Journal of World Business, Elsevier, vol. 49(1), pages 143-155.
    6. A.K.M. Waresul Karim & Tony van Zijl & Sabur Mollah, 2013. "Impact of board ownership, CEO-Chair duality and foreign equity participation on auditor quality choice of IPO companies: Evidence from an emerging market," International Journal of Accounting and Information Management, Emerald Group Publishing, vol. 21(2), pages 148-169, March.
    7. Hsu, Po-Hsuan & Wang, Chong & Wu, Chaopeng, 2013. "Banking systems, innovations, intellectual property protections, and financial markets: Evidence from China," Journal of Business Research, Elsevier, vol. 66(12), pages 2390-2396.
    8. Chi, Wei & Zhang, Haiyan, 2010. "Are stronger executive incentives associated with cross-listing? Evidence from China," China Economic Review, Elsevier, vol. 21(1), pages 150-160, March.
    9. Li, Kai & Yue, Heng & Zhao, Longkai, 2009. "Ownership, institutions, and capital structure: Evidence from China," Journal of Comparative Economics, Elsevier, vol. 37(3), pages 471-490, September.
    10. Fan, Joseph P.H. & Gillan, Stuart L. & Yu, Xin, 2013. "Property rights, R&D spillovers, and corporate accounting transparency in China," Emerging Markets Review, Elsevier, vol. 15(C), pages 34-56.
    11. Zhang, Jianhua & Wang, Peng & Qu, Baozhi, 2012. "Bank risk taking, efficiency, and law enforcement: Evidence from Chinese city commercial banks," China Economic Review, Elsevier, vol. 23(2), pages 284-295.
    12. Lu, Zhengfei & Zhu, Jigao & Zhang, Weining, 2012. "Bank discrimination, holding bank ownership, and economic consequences: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 36(2), pages 341-354.
    13. Guedhami, Omrane & Pittman, Jeffrey A. & Saffar, Walid, 2009. "Auditor choice in privatized firms: Empirical evidence on the role of state and foreign owners," Journal of Accounting and Economics, Elsevier, vol. 48(2-3), pages 151-171, December.
    14. Liu, Chunyan & Uchida, Konari & Yang, Yufeng, 2014. "Controlling shareholder, split-share structure reform and cash dividend payments in China," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 339-357.
    15. Hu, Fang & Tan, Weiqiang & Xin, Qingquan & Yang, Sixian, 2013. "How do market forces affect executive compensation in Chinese state-owned enterprises?," China Economic Review, Elsevier, vol. 25(C), pages 78-87.
    16. Gul, Ferdinand A. & Kim, Jeong-Bon & Qiu, Annie A., 2010. "Ownership concentration, foreign shareholding, audit quality, and stock price synchronicity: Evidence from China," Journal of Financial Economics, Elsevier, vol. 95(3), pages 425-442, March.
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    18. Chen, Jiandong & Cumming, Douglas & Hou, Wenxuan & Lee, Edward, 2013. "Executive integrity, audit opinion, and fraud in Chinese listed firms," Emerging Markets Review, Elsevier, vol. 15(C), pages 72-91.
    19. Armstrong, Christopher S. & Guay, Wayne R. & Weber, Joseph P., 2010. "The role of information and financial reporting in corporate governance and debt contracting," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 179-234, December.
    20. Fan, Joseph P.H. & Gillan, Stuart L. & Yu, Xin, 2013. "Innovation or imitation?," Journal of Multinational Financial Management, Elsevier, vol. 23(3), pages 208-234.

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