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The role of Confucianism in audit firms in mitigating corporate financial restatements

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  • Li, Yuanling
  • Hu, Xuetong
  • Liu, Xudong
  • Dai, Zhongliang
  • Xiao, Zhongyi

Abstract

This study explores the relationship between the integration of Confucian ethical norms into audit firm culture and the incidence of corporate financial restatements. By proposing two competing theoretical frameworks, we analyze the differing impacts of the five core Confucian virtues on the probability of restatements. Using panel data from Chinese listed companies between 2009 and 2021, we find a significant negative correlation between the Confucian ethical values of audit firms and the frequency of financial restatements by their clients. After addressing endogeneity issues through an instrumental variable approach and conducting sensitivity analysis with alternative variable specifications, this relationship remains robust. Mechanism analysis reveals that Confucian philosophy effectively mitigates financial restatement behavior in audit firms through three key channels: corporate transparency, audit quality, and organizational resilience.

Suggested Citation

  • Li, Yuanling & Hu, Xuetong & Liu, Xudong & Dai, Zhongliang & Xiao, Zhongyi, 2025. "The role of Confucianism in audit firms in mitigating corporate financial restatements," Journal of Asian Economics, Elsevier, vol. 100(C).
    • Handle: RePEc:eee:asieco:v:100:y:2025:i:c:s1049007825001496
    DOI: 10.1016/j.asieco.2025.102025
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    Keywords

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    JEL classification:

    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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