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Determinants and consequences of voluntary switches to Chinese auditors in Hong Kong

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  • Liu, Zhenfeng
  • Lin, Stephen

Abstract

Hong Kong market regulators have permitted 12 large Chinese accounting firms to audit the financial statements of Chinese firms that cross list in Hong Kong (i.e., H-share firms) since 2010. This paper examines the characteristics of H-share firms that voluntarily replaced their Hong Kong (HK) auditors with Chinese auditors, and the market reaction to auditor switches following this policy. We find that 38 out of 147 H-share firms voluntarily switched to Chinese auditors during 2011–2013. Switching firms are larger in size and are less likely to use Big4; they also have less need for external financing, a longer cross listing history, and a lower percentage of foreign revenue. We also find that investors negatively react to the auditor switches from HK non-Big4 to China non-Big4, but do not react to the auditor switches from HK Big4 to China Big4. This suggests that investors perceived lower audit quality for China non-Big4.

Suggested Citation

  • Liu, Zhenfeng & Lin, Stephen, 2019. "Determinants and consequences of voluntary switches to Chinese auditors in Hong Kong," Journal of Contemporary Accounting and Economics, Elsevier, vol. 15(3).
    • Handle: RePEc:eee:jocaae:v:15:y:2019:i:3:s1815566919300864
    DOI: 10.1016/j.jcae.2019.100158
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    Cited by:

    1. Chen, Lihong & Xiao, Tingting & Zhou, Jia, 2023. "Do auditor changes affect the disclosure of critical audit matters? Evidence from China," Economic Modelling, Elsevier, vol. 122(C).

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    More about this item

    Keywords

    Auditor switches; Audit quality; Market reaction;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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