Multiple large shareholders and auditor choice: evidence from China

Abstract

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.

Retracted: International expansion and audit opinion shopping: A signaling perspective

“…Auditing is an important mechanism for disciplining management behavior and reducing agency conflicts (Feng et al., 2023). High‐quality auditors have not only greater professional competence and independence (Kim et al., 2016), but also professional ethics and skepticism (Feito‐Ruiz et al., 2021).…”

Does audit quality affect auditors’ career development? Evidence from Chinese audit firms’ demise

“…Specifically, although firms are more inclined to recruit auditors with better performance in the interest of protecting their brand reputation, when screening the sample in this paper, due to their unknown whereabouts, we exclude the auditors shown to be cancelled on the USPC, which is likely to bias the estimation. To solve this problem, we adopt the Heckman two-stage method (Kim and Zhang, 2016;Feng et al, 2023). We construct the model as follows: Model (4) shows the first-stage selection equation.…”