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Positive externality of analyst coverage upon audit services: evidence from China

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  • Junxiong Fang
  • In-Mu Haw
  • Veicheng Yu
  • Xu Zhang

Abstract

Using China's data, we find that analyst coverage helps reduce audit fees, and such effect is more pronounced for small firms, less-educated auditors, and small auditors. Our findings reveal positive externality of analyst coverage upon audit services in China, especially for those auditors weak in professional expertise, or hard to resist the pressure from their clients. Such evidence implies that the reputation protection hypothesis seems less applicable in an emerging market where the market share of big auditors is low. Our findings also provide alternative evidence justifying exchange-sponsored analyst coverage in practice intended to improve information environment of small firms.

Suggested Citation

  • Junxiong Fang & In-Mu Haw & Veicheng Yu & Xu Zhang, 2014. "Positive externality of analyst coverage upon audit services: evidence from China," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 21(2), pages 186-206, June.
    • Handle: RePEc:taf:raaexx:v:21:y:2014:i:2:p:186-206
    DOI: 10.1080/16081625.2013.854949
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    Cited by:

    1. Yingwen Deng & Ole‐Kristian Hope & Cyndia Wang & Min Zhang, 2022. "Capital market liberalization and auditors' accounting adjustments: Evidence from a quasi‐experiment," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 49(1-2), pages 215-248, January.
    2. Chunyu Zu, 2023. "The vanishing searches and audit fees: Evidence from Google's withdrawal from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(S1), pages 817-841, April.
    3. Liuyang Ren & Xi Zhong & Liangyong Wan, 2022. "Missing Analyst Forecasts and Corporate Fraud: Evidence from China," Journal of Business Ethics, Springer, vol. 181(1), pages 171-194, November.
    4. Jiandong Chen & Douglas Cumming & Wenxuan Hou & Edward Lee, 2016. "Does the External Monitoring Effect of Financial Analysts Deter Corporate Fraud in China?," Journal of Business Ethics, Springer, vol. 134(4), pages 727-742, April.
    5. Luo, Jin-hui & Dong, Huaili & Liu, Yue, 2023. "Does high cash compensation compromise the independence of outside directors? Evidence from directors' dissenting votes in China," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).

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