Can mandatory dual audit reduce the cost of equity? Evidence from China

Rui ZHANG, Raymond M. K. WONG, Agnes W. Y. LO, Gaoliang TIAN*

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)peer-review

1 Citation (Scopus)


In China, a mandatory dual audit system for domestic A-share firms cross-listed on the Hong Kong stock market (i.e. AH companies) was abolished in 2010. Since then, AH companies have been allowed to choose to have a dual audit or a single audit. We find that the mandatory dual audit regime before the deregulation is associated with a lower cost of equity than voluntary dual audit after the deregulation. Furthermore, the lower cost of equity under the mandatory dual audit regime is greater in companies exposed to stronger financial constraints and with higher agency costs, and is not attenuated by alternative voluntary audits. Our results are not affected by accounting standards convergence and audit quality, and are robust to various model specifications. Our results suggest that the role of mandatory dual audit in mitigating agency costs and information asymmetry is not replaceable by voluntary dual audit.
Original languageEnglish
Pages (from-to)291-320
Number of pages30
JournalAccounting and Business Research
Issue number3
Early online date14 Apr 2021
Publication statusPublished - 16 Apr 2022

Bibliographical note

Funding Information:
We are grateful to the editors Mark Clatworthy, Juan Manuel García Lara, and Edward Lee and two anonymous reviewers for their helpful comments on the paper. We also thank Liuchuang Li, Baolei Qi, Richard Macve, Liansheng Wu, Hanwen Chen, and participants at the 2018 Accounting and Business Research Special Issue Conference: Auditing in China for their useful suggestions on earlier drafts of the paper. This work was supported by the [National Natural Science Foundation of China] under Grant [number 71672141; 71502134; 71502139; 71602160].

Publisher Copyright:
© 2021 Informa UK Limited, trading as Taylor & Francis Group.


  • China
  • G31
  • G32
  • M42
  • compliance
  • cost of equity
  • deregulation
  • mandatory dual audit

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