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Stock pledges by controlling shareholders and the disclosure of critical audit matters: evidence from China

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  • Xiaoqing Feng
  • Wen Wen
  • Yun Ke
  • Ying He

Abstract

This paper examines the impact of stock pledges by controlling shareholders on critical audit matters (CAMs) disclosure. We show that there is a positive association between stock pledges by controlling shareholders and the disclosure of CAMs. We also find that the positive effect is more pronounced when auditors are Big Four audit firms. Further analysis reveals that increases in accrual earnings management and controlling shareholders’ entrenchment are possible channels through which stock pledges by controlling shareholders affect the disclosure of CAMs. Auditors disclose more CAMs associated with asset impairment and related-party transactions for firms with controlling shareholders pledging their stocks.

Suggested Citation

  • Xiaoqing Feng & Wen Wen & Yun Ke & Ying He, 2023. "Stock pledges by controlling shareholders and the disclosure of critical audit matters: evidence from China," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 30(3), pages 726-744, May.
    • Handle: RePEc:taf:raaexx:v:30:y:2023:i:3:p:726-744
    DOI: 10.1080/16081625.2021.2003713
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