Government ownership, accounting-based regulations, and the pursuit of favorable audit opinions: Evidence from China
Author(s)
Author(s)
Lin, K. Z.
Wang, R. R.
Date Issued
2012
Publisher
American Accounting Association
Journal
Auditing: A Journal of Practice & Theory
Volume
31
Issue
4
Start page
47
End page
64
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.
SFU Affiliated Publication
No
Availability at SFU Library
No database links found.