Document Type
Journal article
Source Publication
Auditing: A Journal of Practice and Theory
Publication Date
11-1-2012
Volume
31
Issue
4
First Page
47
Last Page
64
Publisher
American Accounting Association
Keywords
audit opinions, government ownership, institutional environment, local auditors, accounting-based regulations
Abstract
This research finds that local government-controlled companies are able to obtain more favorable audit opinions from local auditors when they face the need for new equity financing or the threat of exchange delisting. We capture this ability by comparing the observed opinions that companies receive from local auditors with those that we predict they would receive if they used a Big 4 auditor. Our empirical results highlight the importance of understanding political and economic institutions when analyzing the reporting behavior of managers and auditors in a transition economy, and suggest that regulators should be aware of the unintended consequences of basing capital market resource allocation decisions on reported accounting earnings, which can be subject to significant managerial discretion.
DOI
10.2308/ajpt-50227
Print ISSN
02780380
E-ISSN
15587991
Publisher Statement
Copyright © 2012 American Accounting Association
Access to external full text or publisher's version may require subscription.
Full-text Version
Accepted Author Manuscript
Language
English
Recommended Citation
Chan, K. H., Lin, K. Z., & Wang, R. R. (2012). Government ownership, accounting-based regulations, and the pursuit of favorable audit opinions: Evidence from China. Auditing: A Journal of Practice & Theory, 31(4), 47-64. doi: 10.2308/ajpt-50227