Document Type

Journal article

Source Publication

Journal of International Accounting Research

Publication Date

Spring 2007

Volume

6

Issue

1

First Page

19

Last Page

36

Abstract

This study uses agency theory to test whether the demand for quality-differentiated audits by listed Chinese companies is systematically associated with changes in ownership structure, which is characterized by the dominance of government and institutional owners in a transitional economy. Our empirical test results are supportive of agency theory. Specifically, we find that a decrease of government shares and a corresponding increase of institutional shares lead to a general increase in the demand for higher-quality audits in China's stock market. However, the influence of individual shareholders on a firm's auditor-choice decisions appears insignificant. Our results suggest that in the absence of institutional features typically found in free-market economies that provide incentives for managers to supply credible accounting information via quality audits, the introduction of large institutional blockholders can be a good alternative for a transitional economy.

DOI

10.2308/jiar.2007.6.1.19

Print ISSN

15426297

E-ISSN

15588025

Publisher Statement

Copyright © 2007 American Accounting Association

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Full-text Version

Accepted Author Manuscript

Recommended Citation

Chan, K. H., Lin, K. Z., & Zhang, F. (2007). On the association between changes in corporate ownership and changes in auditor quality in a transitional economy. Journal of International Accounting Research, 6(1), 19-36. doi: 10.2308/jiar.2007.6.1.19