Abstract
This study examines whether auditor opinions are affected by political and economic influences from governments. We use auditor locality (local versus non-local) to capture such influences from local governments in China. Based on data from China's stock markets for the period 1996-2002, we find that local auditors, who have greater economic dependence on local clients and are subject to more political influence from local governments than non-local auditors, are inclined to report favorably on local government-owned companies to mitigate probable economic losses. Moreover, companies with qualified opinions are more likely to switch from a non-local auditor to a local auditor than companies with unqualified opinions. Contrary to some prior studies, we find that in China's political environment, local government-owned companies that switched from a non-local auditor to a local auditor after receiving a qualified opinion can succeed in opinion shopping.
Original language | English |
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Pages (from-to) | 21-48 |
Number of pages | 28 |
Journal | Review of Accounting Studies |
Volume | 11 |
Issue number | 1 |
DOIs | |
Publication status | Published - 1 Mar 2006 |
Keywords
- Audit qualifications
- Auditor locality
- Auditor switches
- Economic dependence
- Political influence