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

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

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