Corporate governance and auditor selection: Evidence from Taiwan

Abstract

This paper investigates the relation between corporate governance and auditor selection for firms listed in Taiwan. More specifically, we use the divergence between control rights and cash flow rights (i.e., the ratio of control rights to cash flow rights) to measure the extent of the corporate governance mechanism whereas we use three quality levels to define auditor type - Big 5 industry specialist (highest quality), nonspecialist Big 5 (middle quality), or non-Big 5 auditor (lowest quality). Using both multinomial logistic regression and binary logistic regression models, we find that the likelihood of selecting specialist auditors and Big 5 auditors increases with the ratio of control rights to cash flow rights after controlling for other variables, which suggests that firms with greater entrenchment effects are more likely to hire high quality auditors. Our study contributes to the literature of accounting and auditing by demonstrating the relation between corporate governance, measured as the deviation of control rights and cash flow rights, and selection of high quality auditors, which has not been explored in Taiwan where the interests of controlling and minority shareholders are not perfectly aligned.

Board diversity, audit committee characteristics and audit quality: The moderating role of control-ownership wedge

“…This means that there is a significant relationship between WEDGE and audit quality. The result is consistent with other studies (Chien et al, 2008;Fan & Wong, 2002), in the context of Taiwan and East Asia, respectively. Also, this study's finding is aligned to the Turkish situation (Ararat, Aksu, & Tansel Cetin, 2015).…”

“…Total assets comprise current assets and non-current assets. The amount of total assets is transformed into natural logarithm of total assets (Chien, Chen, & Wu, 2008).…”

Auditor Selection in Borsa Istanbul

“…This means that there is significant relationship between WEDGE and audit quality. The result is consistent with that of (Chien et al, 2008;Fan & Wong, 2002) in the context of Taiwan and East Asia respectively. Also, this study finding in align with the Turkey environment (Ararat, Aksu, and Tansel Cetin, 2015b).…”

Control-Ownership Wedge and Industry Specialist Auditor

“…This means that the choice of industry specialist increase with the ratio of control rights to cash flow rights, which proposed that companies with strong entrenchment impacts are more likely to demand specialist auditor. Many studies report the same argument for example, Chien et al (2008) in the environment of Taiwan, while another study in East Asia is coming by Fan and Wong (2002). In addition, another study conducted by Ararat, Aksu, and Tansel Cetin (2015b) in Turkey's environment.…”