Corporate Governance Mechanisms and Auditor Choice: Evidence from China

Leung, Noel W.; Cheng, Mei-Ai

doi:10.5539/ijbm.v9n9p41

Cited by 7 publications

(8 citation statements)

References 30 publications

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“…Empirically, Beasley and Petroni (2001) investigated the role of independent directors in the selection of external auditors in insurance companies and found that the likelihood of a firm employing a specialized, brand name auditor increased with the percentage of independent board members. Similarly, Leung and Cheng (2014) found that the percentage of independent directors on a board had a significant positive influence on auditor choice. In contrast, Aljabr (2010) failed to document a significant association between the presence of independent directors and auditor choice.…”

Section: Hypotheses Development 231 Board Independencementioning

confidence: 90%

Choosing an external auditor: does the composition of boards of directors matter?

Alfraih

2017

IJLMA

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Purpose This paper aims to investigate the association between the composition of boards of directors and the choice of external auditor among companies listed on the Kuwait Stock Exchange (KSE) in 2013. Design/methodology/approach Consistent with prior research, audit quality is represented by two proxies, namely, a Big 4 and Non-Big 4 audit firm. Independence, diversity, interlocks, size and role duality are used as proxies for board composition. To accommodate the dichotomous dependent variable (auditor choice), a logistic regression model is used to test the hypothesized associations between board composition and auditor choice. Findings After controlling for firm-specific characteristics, results show that independence, diversity and size are statistically significant and increase the likelihood that a KSE-listed company selects a high-quality (Big 4) audit firm. Role duality is also statistically significantly but decreases the likelihood of choosing a Big 4 audit firm. Practical/implications This research has implications for regulators, shareholders, boards and academics. The paper underlines the importance of the composition of the board in increasing the likelihood of hiring a high-quality audit firm. Regulators can draw upon these results when assessing the effectiveness of corporate governance mechanisms. Originality/value This paper is among the first to study the association between auditor choice and board composition using data from the frontier market of Kuwait, thus responding to the call for empirical research into the issue in less-developed markets. Overall, it sheds light on the effectiveness of board composition and provides empirical evidence that it is an important element in the choice of auditors. The findings indicate that board composition may be a mechanism that can promote demand for high audit quality.

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Section: Hypotheses Development 231 Board Independencementioning

confidence: 90%

Choosing an external auditor: does the composition of boards of directors matter?

Alfraih

2017

IJLMA

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“…They report that firms subject to agency problems in the form of blockholder ownership are more likely to appoint Big 5 auditors to provide high audit quality. Leung and Cheng (2014) provide a similar result based on data from Chines listed firms. Yang et al (2019) reported that a company whose controller has foreign residency rights is more likely to choose a Big 4 auditor than other companies.…”

Section: Family Ownership and Auditor Choicementioning

confidence: 52%

“…Consistent with prior research, auditor size will be employed as a dependent (e.g. Leung et al, 2014;Leung and Liu, 2015;Darmadi, 2016;Kim et al, 2018, Yang et al 2019).…”

Section: Measurement Of Variables and Model Specificationmentioning

confidence: 99%

The effect of ownership structure and board characteristics on auditor choice: evidence from Egypt

El-Dyasty

Elamer

2021

Int J Discl Gov

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In this study, we explore the influence of board characteristics and ownership structure on auditor choice decisions in less strictly legal environments, like Egypt. Using a large sample of 899 firmyear observations for the period of 2011 to 2019, we employed logistic and probit regressions. We find that larger boards, institutional ownership, and foreign ownership have a significant and positive association with appointing Big 4 auditors. In contrast, our findings indicate that CEO duality and family ownership are negatively related to Big 4 choice. Our results also show that powerful CEOs (duality) and independent directors are more likely to hire second-tier auditors instead of Big 4, whereas larger board and foreign owners are less likely to hire third-tier auditors.Our results remain robust even after taking audit committee characteristics and endogeneities issues into consideration. Taken together, our research, therefore, provides consistent evidence that different governance and institutional variables can effectively generate economic forces that can support diverging decisions regarding the auditor choice patterns to attenuate agency problems. Our results have important implications for regulators, policymakers, and auditors to understand the drivers of auditor choice and audit market structure.

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“…multiple large shareholders) but find mixed results. For instance, Leung and Cheng (2014) and Leung and Liu (2015) show that the aggregate ownership of the second to fifth largest shareholders has a significantly positive influence on Big Four auditor choice [8]. However, it has also been argued that in the Chinese setting, large shareholders may not prefer high-quality auditors because they can maximize their private benefits by expropriation from other shareholders without strong monitoring from high-quality auditors.…”

Section: Institutional Background Related Literature and Hypotheses D...mentioning

confidence: 99%

Multiple large shareholders and auditor choice: evidence from China

Feng

Wen

et al. 2023

MAJ

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Purpose This study aims to examine whether a firm's demand for high-quality auditors is influenced by multiple large shareholders (MLS). As one type of ownership structure, MLS have gained popularity in China recently and have different types of large shareholders, including large institutional shareholder, large foreign shareholder and large state shareholder. The authors also examine whether different types of MLS have heterogeneous impacts on appointing high-quality auditors. Design/methodology/approach With a sample of 27,131 firm-year observations from Chinese public companies from 2003 to 2018, the authors use multivariate regressions to examine the effect of MLS on auditor choice. Heckman two-stage analysis, a firm fixed effects model, propensity score matching and difference-in-differences test are used as robustness checks. Findings This paper finds that the presence and power of MLS increase the likelihood of appointing high-quality auditors. With regard to the types of MLS, large institutional shareholders and foreign shareholders have significant positive effects on appointing high-quality auditors, while the presence of state-owned large shareholders has no effect on auditor choice. Further analyses reveal that the positive effect of MLS on high-quality auditor choice is more pronounced in firms with severe agency problems and information asymmetry. Taken together, these results suggest that MLS play a monitoring role by demanding high-quality auditors. Originality/value This paper contributes to the literature on the determinants of auditor choice. While prior studies primarily focus on the impact of concentrated ownership structure, corporate governance and the pressure from stakeholders on auditor choice, this paper complements the literature by providing evidence from the heterogeneous effects of different types MLS. This paper also extends the literature on the consequences of MLS from the perspective of auditor choice.

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Corporate Governance Mechanisms and Auditor Choice: Evidence from China

Cited by 7 publications

References 30 publications

Choosing an external auditor: does the composition of boards of directors matter?

Choosing an external auditor: does the composition of boards of directors matter?

The effect of ownership structure and board characteristics on auditor choice: evidence from Egypt

Multiple large shareholders and auditor choice: evidence from China

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