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Mandatory audit partner rotation, audit market concentration, and audit quality: Evidence from China

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  • Bandyopadhyay, Sati P.
  • Chen, Changling
  • Yu, Yingmin

Abstract

This research examines the audit quality consequences of China's mandatory audit partner rotation (MPR) regulation, which became effective in 2004. The rule requires firms to rotate signing audit partners of audit reports every five years. We find that audit quality improves in the three years immediately following a client firm's MPR during the 2004–2011 period for a sample of 273 Chinese publicly listed firms. Specifically, we find that the improvement is most pronounced in those Chinese provinces with both low levels of audit market concentration and low levels of legal development. However, MPR does not improve audit quality in jurisdictions where legal conventions are more developed and/or where audit markets are highly concentrated with a handful of large audit firms dominating the market.

Suggested Citation

  • Bandyopadhyay, Sati P. & Chen, Changling & Yu, Yingmin, 2014. "Mandatory audit partner rotation, audit market concentration, and audit quality: Evidence from China," Advances in accounting, Elsevier, vol. 30(1), pages 18-31.
    • Handle: RePEc:eee:advacc:v:30:y:2014:i:1:p:18-31
    DOI: 10.1016/j.adiac.2013.12.001
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    Cited by:

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    More about this item

    Keywords

    Mandatory audit partner rotation; Audit market concentration; Audit quality;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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