Ownership concentration, modified audit opinion, and auditor switch: New evidence and method

Hu, May; Muhammad, AbdulHafeez; Yang, Jingjing

doi:10.1016/j.najef.2022.101692

Cited by 6 publications

(5 citation statements)

References 29 publications

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“…The efforts made by the company's management for an effective AQ to achieve corporate performance require the support of the shareholders. Since the stockholders have substantial influence over the management appointment, the auditors have the incentive to satisfy stockholders by inappropriately accepting management's preferred accounting Hu et al, (2022), which may make the auditor financially dependent on the shareholders, putting their judgments (Shakhatreh & Alsmadi, 2021).…”

Section: The Moderating Effect Of Ownership Concentrationmentioning

confidence: 99%

The Impact of Audit Quality on Firm Performance: the Moderating Role of Ownership Concentration

Hyarat,

Husin,

Jos

2023

J. Professional Business Review

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Purpose: The main objectives of this research were to study the direct relationship between audit quality (AQ) and the performance of non-financial Jordanian companies and to look into how ownership concentration affects this relationship. Theoretical framework: This research focuses on AQ, FP, and ownership concentration. Ownership concentration moderates the relationship between AQ and FP, according to the framework. Audit fees are used to evaluate AQ and lend credibility to financial reports, protecting shareholders' interests. Design/methodology/approach: The study was conducted on public companies listed on the Stock Exchange of Amman (ASE) in the services and industry sectors, with a total of 92 firms, from 2014 to 2018. The data analysis method used was partial least squares structural equation modelling (PLS-SEM). Findings: The study's findings suggest that AQ is positively linked to FP, and ownership concentration has a positive and significant effect on FP. Additionally, the moderating influence of ownership concentration confirms that AQ has a statistically significant impact on FP. Research, Practical & Social implications: The result of this article helps firm managers, regulatory agencies, and market participants on the ASE, as well as nations with highly concentrated ownership and policymakers, understand governance. Originality/value: This study is one of the first papers in the Jordanian context to address the role of moderating the effect of ownership concentration between AC and FP.

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Section: The Moderating Effect Of Ownership Concentrationmentioning

confidence: 99%

The Impact of Audit Quality on Firm Performance: the Moderating Role of Ownership Concentration

Hyarat,

Husin,

Jos

2023

J. Professional Business Review

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“…First, the analysis of the effect of customers' financial restatements may extend previous studies on factors affecting audit opinions. Previous literature focuses on the firm-specific characteristics (Charles et al, 2010;Kravet and Shevlin, 2010;McEwen et al, 2013;He et al, 2021;Hu et al, 2022); this study provides new evidence about whether financial information from firm's customers, a key stakeholder, can affect audit risk. Second, this paper carries implications for the contagion effects of firm risks along the supply chain, providing insights into how auditors respond to customers' financial restatements of the audited suppliers.…”

Section: Introductionmentioning

confidence: 99%

“…In addition, some scholars pay attention to the contagion effects of financial restatements, whereby a firm’s financial restatement can affect various aspects of other peer firms (or customers), such as stock prices (Chen and Lai, 2008; Gleason et al , 2008), capital expenditures (Li, 2016), investment decisions (Durnev and Mangen, 2009; Beatty et al , 2013) and even loan spreads (Files and Gurun, 2018). Given that audit supervision serves as an effective external governance mechanism to identify and promptly respond to the risks inherent in financial restatements (Charles et al , 2010; Kravet and Shevlin, 2010; McEwen et al , 2013; Hu et al , 2022), there is limited understanding of whether and how auditors can effectively identify information risk and business risk stemming from a client’s major customers. To fill this gap, this study investigates the impact of customers’ financial restatements on the audit opinion of their suppliers.…”

Section: Introductionmentioning

confidence: 99%

Do customers’ financial restatements affect how auditors respond to their suppliers? Evidence from China

Hu,

Qian,

2024

MAJ

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Purpose The purpose of this study is to explore the economic impact of financial restatements by major customers on the audit opinion of their suppliers, showing that non-financial information disclosure potentially helps auditors make better assessments. Design/methodology/approach Using a sample of China’s listed firms from 2007 to 2021, the authors aim to find the relationship between customers’ financial restatements and their suppliers’ audit opinions. Heckman selection model, placebo tests and other robustness checks are used as well. Findings The findings reveal that customers’ financial restatements have a significant effect on the likelihood of suppliers receiving modified audit opinions. This relationship is pronounced when suppliers face a higher level of financial constraints, exhibit poorer accounting conservatism or receive more negative media coverage. Additionally, this effect occurs through increased business risk and information risk, which heightens auditors’ perceived audit risk. Moreover, the study highlights the influence of switching costs, auditor expertise and restatement severity on this relationship. Practical implications Risks originating from customers can spread along the supply chain, emphasizing the necessity for auditors to give heightened attention to both the audited firms and their customer information. Moreover, regulators should carefully consider the important impact of customer information disclosures to maximize the protection of the interests of external information users. Originality/value This study not only confirms the crucial role of customer information disclosures in annual reports for stakeholders and auditors but also contributes to the existing literature on customer–supplier relationships.

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“…Gul et al (2010) found foreign ownership and auditor quality are negatively correlated with stock price synchronicity. Empirical results by Hu et al (2022) showed that auditors might cater to the real controller's preferences of listed companies when they issue audit opinions and that the ownership structure of listed companies affects the "auditor opinion shopping" behaviour of listed companies.…”

Section: Other Agenciesmentioning

confidence: 99%

“…Qian and Yeung (2015) argued that banks in China do not exercise oversight and the banking system needs to become efficient to make the market develop. Auditors might cater to the real controller's preferences for listed companies when issuing audit opinions (Hu et al, 2022), and guanxi from state ownership and management affiliations with external auditors increase the chance of obtaining a clean audit opinion (Liu et al, 2011). Media coverage in developing countries, including China, is more conducive to deals that meet the government's goals and involve powerful local companies (Borochin and Cu, 2018).…”

Section: Cluster 3: Market Protection Mechanismmentioning

confidence: 99%

La gobernanza empresarial en China y sus efectos en la información sobre los objetivos de desarrollo sostenible

Jiang

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As a graduating PhD student, I feel very fulfilled and satisfied when I look back on my research career. During this time, I have not only gained professional knowledge and skills, but also made many excellent peers and supervisors.First, I would like to thank my supervisors Emma García-Meca and Jennifer Martínez-Ferrero for their selfless guidance and assistance throughout my research.From the beginning of my PhD, they gave me a very long-term plan; throughout my PhD, they clearly informed me of what I needed to achieve at each stage, so I was very fortunate to have avoided a lot of detours. I remember in my first year, my supervisors gave me the most help and guidance on everything from choosing a topic for my thesis, data collection, research methodology design and so on! They gave me valuable advice and suggestions on every revision and review of my thesis. To solve technical difficulties, they helped me in every possible way including but not limited to recording videos, video chat, sending me relevant papers, contacting professionals to help solve problems with SciMAT, etc. On many occasions during the dissertation process, when I was at a loss, Emma García-Meca and Jennifer Martínez-Ferrero were the first to give me patient guidance and encouragement, giving me the confidence and courage not to give up. Every time I made some progress or breakthrough, they were always there to set me up and plan the next stage! They led me through the door of academia, showing me by example the rigor and professionalism of being an academic. I learned more about the workings and rules of the academic world, as well as expanding my horizons and thinking. It is no exaggeration to say that without Emma García-Meca and Jennifer Martínez-Ferrero, I would not have been able to complete my PhD and make so much progress! Secondly, I would like to thank my family. They have been most encouraging and supportive throughout the process of completing my PhD. I could not have completed this journey without their company and support.So far, I have finished writing my academic thesis and my PhD will come to an end, but I will continue to work hard! Thanks again to you all for your support and help! Cartagena, 2023

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Ownership concentration, modified audit opinion, and auditor switch: New evidence and method

Cited by 6 publications

References 29 publications

The Impact of Audit Quality on Firm Performance: the Moderating Role of Ownership Concentration

The Impact of Audit Quality on Firm Performance: the Moderating Role of Ownership Concentration

Do customers’ financial restatements affect how auditors respond to their suppliers? Evidence from China

La gobernanza empresarial en China y sus efectos en la información sobre los objetivos de desarrollo sostenible

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