Government ownership, accounting-based regulations, and the pursuit of favorable audit opinions : evidence from China

Research output: Journal PublicationsJournal Article (refereed)

22 Citations (Scopus)

Abstract

This research finds that local government-controlled companies are able to obtain more favorable audit opinions from local auditors when they face the need for new equity financing or the threat of exchange delisting. We capture this ability by comparing the observed opinions that companies receive from local auditors with those that we predict they would receive if they used a Big 4 auditor. Our empirical results highlight the importance of understanding political and economic institutions when analyzing the reporting behavior of managers and auditors in a transition economy, and suggest that regulators should be aware of the unintended consequences of basing capital market resource allocation decisions on reported accounting earnings, which can be subject to significant managerial discretion.
Original languageEnglish
Pages (from-to)47-64
Number of pages18
JournalAuditing: A Journal of Practice and Theory
Volume31
Issue number4
DOIs
Publication statusPublished - 1 Nov 2012

Keywords

  • accounting-based regulations
  • audit opinions
  • government ownership
  • institutional environment
  • local auditors

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