State ownership, the institutional environment, and auditor choice: Evidence from China

Structural Changes in the Chinese Stock Market: A Review of Empirical Research

“…Table 1 shows that the empirical results are generally consistent with the hypothesis of an efficiency gain after the partial privatisation of SOEs. The increase in minority private ownership is shown to be associated with higher perceived firm value (Wei, Xie, and Zhang, 2005); higher profit reinvestment rate (Cull and Xu, 2005); higher discount rate in making investment decisions (Liu and Siu, 2011); improved firm's earnings ability, real sales, and workers' productivity (Sun and Tong, 2003); better transparency of firm's specific information (Gul, Kim, and Qiu, 2010); lower earnings management ; higher pay-for-performance sensitivity (Cao, Pan, and Tian, 2011); higher accounting conservatism ; and the choice of higher quality auditors (Wang, Wong, and Xia, 2008). The primary argument is that the stock market provides incentives for investors to gather information that is reflected in share price and this information can improve managerial incentives in a number of ways.…”

“…This privilege lowers SOEs' bankruptcy risk and consequently affects their financial reporting and auditor choice. Specifically, compared with non-SOEs, SOEs have a lower demand for large or non-local auditors (Wang, Wong, and Xia, 2008), a lower earnings management incentive , less conservative accounting , and lower audit fees (Liu and Subramaniam, 2013). Fourth, the value of political connections is endorsed by the market, as evidenced by the positive market reaction to a firm's political ties.…”

Big N Auditors and Earnings Response Coefficients – A Comparison Study between the US and China*

“…use Heckman's two-stage procedure to estimate the coefficients (Heckman, 1976). The first stage obtains an inverse Mills ratio (IMR) from the logistic regression on the determinants of auditor choice in Wang et al (2008). Specifically, the first-stage regression model is specified as follows:…”

“…The first stage obtains an IMR following the logistic regression on the determinants of auditor choice in Wang et al (2008). Specifically, the first-stage regression model is specified as …”

“…However, whether auditor independence is impaired by politics remains an important concern (e.g. Wang, Wong, and Xia, 2008;Chan, Lin, and Wong, 2010).…”