Journal article
Audit Market Concentration, Audit Fees, and Audit Quality: Evidence from China
Auditing : a journal of practice and theory, v 35(2), pp 121-145
01 May 2016
Abstract
We investigate the effects of audit market concentration on audit fees and audit quality in China, where competition is intense and the legal environment is relatively weak compared with developed countries. Analyzing 12,334 firm-year observations for the period 2001 to 2011, we find a significant positive relation between concentration and audit fees. Path analysis shows that concentration improves client earnings quality and reduces the need for auditors to issue modified audit opinions through increased audit fees. Additional analysis indicates that the increased audit fees and client earnings quality resulting from increased concentration are associated with a lower likelihood of executives and auditors being sanctioned by regulators for audit failures. Together, our results suggest that concentration improves audit quality indirectly through increased audit fees and this positive indirect effect offsets the negative direct effect of concentration on audit quality. By separating the direct and the indirect effect of concentration on audit quality, our study would explain why previous studies that do not have a separation document mixed evidence. Our findings inform regulators that actions taken to eliminate the indirect effect of concentration, for example restricting the upper bound of audit fees, could produce unintended outcomes such as decreased audit quality.
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Details
- Title
- Audit Market Concentration, Audit Fees, and Audit Quality: Evidence from China
- Creators
- Ting-Chiao Huang - Monash UniversityHsihui Chang - Drexel UniversityJeng-Ren Chiou - National Cheng Kung University
- Publication Details
- Auditing : a journal of practice and theory, v 35(2), pp 121-145
- Publisher
- Amer Accounting Assoc
- Number of pages
- 25
- Grant note
- NSC 102-2410-H-006-006 / Taiwan National Science Council; Ministry of Science and Technology, Taiwan
- Resource Type
- Journal article
- Language
- English
- Academic Unit
- Accounting
- Web of Science ID
- WOS:000375910000006
- Scopus ID
- 2-s2.0-84966692249
- Other Identifier
- 991019167915804721
InCites Highlights
Data related to this publication, from InCites Benchmarking & Analytics tool:
- Collaboration types
- Domestic collaboration
- International collaboration
- Web of Science research areas
- Business, Finance