IDEAS home Printed from https://ideas.repec.org/a/aea/aejapp/v13y2021i3p176-201.html

Hometown Ties and the Quality of Government Monitoring: Evidence from Rotation of Chinese Auditors

Author

Listed:
  • Jian Chu
  • Raymond Fisman
  • Songtao Tan
  • Yongxiang Wang

Abstract

Audits are a standard mechanism for reducing corruption in government investments. The quality of audits themselves, however, may be affected by relationships between auditor and target. We study whether provincial chief auditors in China show greater leniency in evaluating prefecture governments in their hometowns. In city-fixed-effect specifications―in which the role of shared background is identified from auditor turnover―we show that hometown auditors find 38 percent less in questionable monies. This hometown effect is similar throughout the auditor's tenure and is diminished for audits ordered by the provincial Organization Department as a result of the departure of top city officials. We argue that our findings are most readily explained by leniency toward local officials rather than an endogenous response to concerns of better enforcement by hometown auditors. We complement these city-level findings with firm-level analyses of earnings manipulation by state-owned enterprises (SOE) via real activity manipulation (a standard measure from the accounting literature), which we show is higher under hometown auditors.

Suggested Citation

  • Jian Chu & Raymond Fisman & Songtao Tan & Yongxiang Wang, 2021. "Hometown Ties and the Quality of Government Monitoring: Evidence from Rotation of Chinese Auditors," American Economic Journal: Applied Economics, American Economic Association, vol. 13(3), pages 176-201, July.
    • Handle: RePEc:aea:aejapp:v:13:y:2021:i:3:p:176-201
    DOI: 10.1257/app.20190516
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/app.20190516
    Download Restriction: no
    File URL: https://doi.org/10.3886/E119148V1
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/app.20190516.ds
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    File URL: https://libkey.io/10.1257/app.20190516?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    More about this item

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • P25 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Urban, Rural, and Regional Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aejapp:v:13:y:2021:i:3:p:176-201. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.