How does reciprocal rent-seeking between politicians and auditors influence audit quality Evidence from China.docx[5].pdf (654.48 kB)
How does reciprocal rent-seeking between politicians and auditors influence audit quality? Evidence from China
journal contribution
posted on 2023-06-10, 06:01 authored by Ku He, Xiaofei Pan, Gary Gang Tian, Yanling WuYanling Wu, Chun CaiIn this study, we propose a reciprocal rent-seeking game between politicians and individual auditors with political connections and examine how these auditors' political connections influence their audit quality. Using hand-collected data from China between 2008 and 2013, we find that politically connected auditors have a significantly lower tendency to issue modified audit opinions (MAOs). We also find that politicians' career prospects are significantly adversely influenced by MAOs being issued in their jurisdictions, while connected auditors charge higher audit fees, acquire larger market share, and have a lower chance of encountering regulatory sanctions. Further evidence suggests that politically connected auditors tend to issue less accurate audit opinions, reduce client firms' earnings response coefficients (ERCs), and increase client firms' capital costs. Collectively, our study suggests that individual auditors' political connections facilitate the reciprocal rent-seeking activities between them and politicians, which ultimately undermines audit quality.
History
Publication status
- Published
File Version
- Accepted version
Journal
Accounting HorizonsISSN
0888-7993Publisher
American Accounting AssociationExternal DOI
Issue
3Volume
36Page range
103-126Department affiliated with
- Accounting and Finance Publications
Full text available
- Yes
Peer reviewed?
- Yes
Legacy Posted Date
2023-01-19First Open Access (FOA) Date
2023-03-21First Compliant Deposit (FCD) Date
2023-01-19Usage metrics
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