Political Connections, Audit Opinions, and Auditor Choice: Evidence from the Ouster of Government Officers

2017 ◽  
Vol 36 (3) ◽  
pp. 91-114 ◽  
Author(s):  
Ku He ◽  
Xiaofei Pan ◽  
Gary Gang Tian
Keyword(s):  
Audit Fees ◽  
Political Connections ◽  
Corporate Ownership ◽  
Audit Risk ◽  
Listed Firms ◽  
Auditor Choice ◽  
Ownership Structures ◽  
Before And After ◽  
Audit Opinions ◽  
High Level

SUMMARY In this study, we examine changes in audit opinions and auditor choice decisions in politically connected firms before and after the exogenous termination of their political connections. We use 84 anti-corruption cases involving high-level Chinese bureaucrats between 2004 and 2014 to construct a nature experiment, and identify a set of listed firms whose executives bribe or have connections through family affiliation with these corrupt bureaucrats. We find that within the event years of the ouster of corrupt bureaucrats, connected state-owned enterprises (SOEs) receive more favorable audit opinions than their non-connected counterparts, whereas connected non-SOEs obtain less favorable opinions. Moreover, after the termination of political connections, connected SOEs are more likely, while connected non-SOEs are less likely, to hire local small auditors. Additional analyses show that termination of political ties has more pronounced effects after the recent anti-corruption campaign. Furthermore, the levels of earnings management and audit fees in SOEs decrease when political connections are terminated, but they increase in non-SOEs. In summary, our study suggests that the termination of corporate political connections has a significant influence on auditors' assessments of audit risk and firms' auditor choice patterns, and this influence is subject to corporate ownership structures.

Does environmental disclosure have an auditing effect?

2019 ◽  
Vol 35 (1) ◽  
pp. 43-66
Author(s):  
Sheng Yao ◽  
Lingling Pan ◽  
Zhipeng Zhang
Keyword(s):  
Internal Control ◽  
Audit Fees ◽  
Environmental Information ◽  
Environmental Disclosure ◽  
Audit Risk ◽  
Content Type ◽  
Media Attention ◽  
Environmental Disclosures ◽  
Audit Opinions ◽  
High Level

Purpose The purpose of this paper is to investigate whether firms with high environmental disclosure have a low possibility of non-standard audit opinions and audit fees and whether this trend is more obvious after than prior to the Measures for the Disclosure of Environmental Information (Measure) implemented in 2008. Design/methodology/approach Based on the Measures implemented in 2008, the authors select data for the listed manufacturing firms from 2004 to 2006 (Pre-Measure) and from 2009 to 2011 (Post-Measure) as research samples to investigate the relationships between environmental disclosures, audit opinions and audit fees with difference in difference models. In addition, we also consider the influence of media attention, the polluting industry and internal control on the audit effect of environmental disclosure. Findings The results show that the level of environmental disclosure is significantly negatively correlated with the possibility of issuing non-standard audit opinions and audit fees after measure is implemented, especially hard environmental information. Further evidence indicates that the auditing effect of environmental disclosures is stronger on firms that receive less media attention, in firms with better internal controls, and in firms belonging to industries with heavy pollution. Originality/value In the Chinese setting, a high level of environmental information disclosures can effectively reduce the audit risk and lead to a high possibility of standard audit opinions and low audit fees. This effect is pronounced after issuing Measure. The conclusions suggest that measure and increasing environmental disclosure have an obvious positive audit effect and that firms should be forced or encouraged to disclose more environmental information from the perspective of auditors in China.

scholarly journals Board Interlocking no Brasil: A Participacão de Conselheiros em Múltiplas Companhias e seu Efeito sobre o Valor das Empresas

2007 ◽  
Vol 5 (2) ◽  
pp. 125 ◽  
Author(s):  
Rafael Liza Santos ◽  
Alexandre Di Miceli da Silveira
Keyword(s):  
Firm Value ◽  
Operational Performance ◽  
Interlocking Directorates ◽  
Listed Firms ◽  
Ownership Structures ◽  
Multiple Directorships ◽  
Good Corporate Governance ◽  
Governance Practices ◽  
High Level ◽  
Dispersed Ownership

This paper investigates the simultaneous participation of directors in different companies from 320 Brazilian listed firms in 2003 and 2005. We identify which firms are connected through a network of directors, which corporate characteristics contribute to this phenomenon, and if board interlocking influences firm value and operational performance. The results show that interlocking directorates are a common practice in Brazil. Besides, larger boards, more dispersed ownership structures, and larger firm size are factors associated with a high level of board interlocking. Moreover, we find that firm value is, on average, negatively impacted by higher levels of board interlocking, especially on firms with board of directors considered too busy (those in which a majority of directors hold three or more directorships) or on firms where their CEO hold directorships in other companies. Besides being a pioneer work on this field in Latin America, the paper provides subsides for the preparation of good corporate governance practices from regulators regarding the effectiveness of multiple directorships and its consequences for corporate value.

How does reciprocal rent-seeking between politicians and auditors influence audit quality? - Evidence from China

2021 ◽  
Author(s):  
Ku He ◽  
Xiaofei Pan ◽  
Gary Gang Tian ◽  
Yanling Wu ◽  
Chun Cai
Keyword(s):  
Audit Quality ◽  
Audit Fees ◽  
Rent Seeking ◽  
Political Connections ◽  
Chinese Market ◽  
Earnings Response Coefficients ◽  
Capital Costs ◽  
Study Results ◽  
Earnings Response ◽  
Audit Opinions

In 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 the Chinese market from 2008 to 2013, we find that politically connected auditors have a significantly lower tendency to issue modified audit opinions (MAOs). In addition, we also find that politicians' career prospects are significantly adversely influenced by MAOs being issued in their jurisdictions, while auditors' political connections enable them to charge higher audit fees, acquire larger market share, and reduce the likelihood of encountering regulatory sanctions. Further evidence suggests that compared with their non-connected counterparts, the 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 results suggest that individual auditors' political connections facilitate the reciprocal rent-seeking activities between these auditors and politicians, which ultimately undermines audit quality.

Auditor Choice and Audit Fees in Family Firms: Evidence from the S&P 1500

2013 ◽  
Vol 32 (4) ◽  
pp. 71-93 ◽  
Author(s):  
Joanna L. Ho ◽  
Fei Kang
Keyword(s):  
Family Firms ◽  
Agency Problems ◽  
Audit Fees ◽  
Additional Analysis ◽  
Audit Risk ◽  
Auditor Choice ◽  
Using Data

SUMMARY We examine auditor choice and audit fees in family firms using data from Standard & Poor's (S&P) 1500 firms. We find that, compared to non-family firms, family firms are less likely to hire top-tier auditors due to the less severe agency problems between owners and managers. Our results also show that family firms, on average, incur lower audit fees than non-family firms, which is driven by family firms' lower demand for external auditing services and auditors' perceived lower audit risk for family firms. Our additional analysis indicates that the tendency of family firms to hire non-top-tier auditors and to pay lower audit fees is stronger when family owners actively monitor their firms.

scholarly journals Fair value measurement and its impact on audit fees: evidence in the Brazilian market

2021 ◽  
Vol 13 (2) ◽  
Author(s):  
Edson Vinícius Pontes Bastos ◽  
Luciana Holtz ◽  
Odilanei Morais dos Santos
Keyword(s):  
Risk Premium ◽  
Audit Fees ◽  
Fair Value ◽  
Audit Risk ◽  
Audit Firms ◽  
Fair Value Measurement ◽  
Before And After ◽  
Multiple Regression Technique ◽  
Value Measurement ◽  
The Impact

Objective: The purpose is to verify the impact of using the measurement at fair value on the audit fees, differentiating even the period before and after the adoption of IFRS 13 (CPC 46).  Methodology: The research is quantitative, for testing the hypothesis raised, the multiple regression technique was used, with data available from companies listed in B3 for the period between 2010 and 2016.  Results: The evidence indicates that the complexity and subjectivity of fair value is recognized by the audit firms, that is, audit firms recognize that fair value measurement implies more effort and that the associated audit risk rises, leading firms to charge of a risk premium for the provision of the service. However, it was not possible to confirm that auditors' fees increased after the adoption of IFRS13 (CPC 46).  Contributions of study: Theoretical/methodological - The study contributes to understanding the impacts of adopting international accounting standards, in this specific case on audit fees. Social/management - Given the evidence that there is a higher audit cost associated with the greater complexity of information in a fair value environment, companies can develop mechanisms to minimize the uncertainty of the information to be audited.

scholarly journals Corporate ownership, control and the informativeness of disclosed earnings in Russian listed firms

2008 ◽  
Vol 6 (2) ◽  
pp. 9-24 ◽  
Author(s):  
Sheraz Ahmed
Keyword(s):  
Earnings Management ◽  
Discretionary Accruals ◽  
Performance Measure ◽  
Effective Control ◽  
Corporate Ownership ◽  
Short Term ◽  
Listed Firms ◽  
Ownership Structures ◽  
Concentrated Ownership ◽  
Economic Shock

Many problems of corporate governance in Russia are beyond the scope of classical agency theory because of highly concentrated ownership structures. Using ownership and financial dataset from UBS Brunswick, we show that the use of accrual based accounting in Russia has resulted in lower in formativeness of earnings. Opportunistic earnings management hypothesis holds where majority shareholders (controllers) enjoy short-term benefits of manipulating accounting. Interestingly, the returns (net of market) increase when use of discretionary accruals to manage earnings increases in firms controlled by either state or oligarchs. However, such relationship does not exist when ownership is accumulated without control. We also found that state-owned companies use less discretionary accruals than other control groups. We do not find any evidence supporting performance measure hypothesis where firms manage earnings by discretionary accruals to offset the over or under reaction of economic shock. Highly leveraged firms tend to have positive relationship between earnings management and returns, whereas, both size and growth reflect negative informativeness of earnings. The results describe the concentrated ownership structure in Russia where controlling owners not only, achieve personal targets by over or under-statement of disclosed earnings but also get positive response from the market. This market benefit however, can only be achieved with effective control.

Corporate Ownership, Political Connections and M&A: Empirical Evidence from China

2013 ◽  
Vol 12 (3) ◽  
pp. 41-57 ◽  
Author(s):  
Ningyue Liu ◽  
Liming Wang ◽  
Min Zhang
Keyword(s):  
Negative Impact ◽  
Positive Impact ◽  
Political Connections ◽  
The Political ◽  
Corporate Ownership ◽  
Listed Firms ◽  
And Performance ◽  
Using Data ◽  
Corporate Mergers And Acquisitions ◽  
The Impact

This paper examines the impact of political connections on corporate mergers and acquisitions (M&As) behavior using data from companies listed in Chinese equity markets during the period 1998 to 2010. Our empirical results indicate that firms with political connections have a greater probability of engaging in M&As and tend to engage in larger-scale M&As. The impact of political connections on corporate M&As is mainly realized via government intervention in state-owned enterprises (SOEs). The paper also investigates the impact of political connections on M&A performance, demonstrating a significantly negative impact when SOEs are involved but a significantly positive impact when non-SOEs are involved. The findings of this paper suggest that the political connections of Chinese listed firms have a strong influence on M&A activities and performance.

Politically Connected Boards and Audit Pricing: U.S. Evidence

2021 ◽  
Author(s):  
Keval Amin ◽  
Chansog Francis Kim ◽  
Zhifeng Yang ◽  
FeiTeng Ye
Keyword(s):  
Financial Reporting ◽  
Fixed Effects ◽  
Reporting Quality ◽  
Audit Fees ◽  
Political Connections ◽  
Fixed Effects Model ◽  
Audit Pricing ◽  
Audit Risk ◽  
Distressed Firms ◽  
The Impact

This study investigates the impact of political connections, as measured by having directors that previously held political positions, on the pricing of audits. We document that auditors charge higher fees to politically connected firms than to similar non-connected firms. Our findings are robust to a battery of additional analyses including (1) propensity score matching, (2) entropy balancing, (3) changes analysis, and (4) a fixed effects model with transaction-based measures of political connections (i.e., campaign contributions and lobbying expenditures) in the model. The effect of political connections on audit fees is mitigated by independent monitoring. Moreover, the main effect is stronger in firms with more complicated operational structures and higher litigation risk, but weaker for distressed firms. Although our findings suggest that auditors exert greater effort at politically connected clients, we show that connected clients report significantly higher discretionary accruals, consistent with auditors' incremental effort being insufficient to fully offset the audit risk inherent in these engagements. Collectively, our study sheds light on how auditors perceive political connections and their impact on financial reporting quality.

scholarly journals The Effect of Ownership Structures on Audit Fees of Listed Firms in Ghana

2021 ◽  
Vol 22 (2) ◽  
pp. 392-409
Author(s):  
Alhassan Musah ◽  
Bismark Okyere ◽  
Eric Agyapong Boakye
Keyword(s):  
Geographical Area ◽  
Secondary Data ◽  
Audit Fees ◽  
Foreign Ownership ◽  
Managerial Ownership ◽  
Government Ownership ◽  
Listed Firms ◽  
Ownership Structures ◽  
Financial Firms ◽  
Study Results

Research aims: The study examined the effect of ownership structures on audit fees of listed firms in Ghana. The study used four indicators to measure ownership structure: managerial ownership, foreign ownership, government ownership, and substantial (block) ownership.Design/Methodology/Approach: The study sampled 21 listed non-financial firms over ten years, covering the period 2010 to 2019. The study also relied on secondary data extracted from the financial statement of these listed firms. Data were analyzed using descriptive statistics, correlation analysis, and panel regression analysis.Research findings: The study results showed a positive and significant association between foreign ownership and audit fees in Ghana. The study further found a positive and significant relationship between block ownership and audit fees. The results, however, uncovered an insignificant association between government ownership and audit fees. Furthermore, the study reported a positive coefficient between block ownership and audit fees, and the relationship was statistically significant.Theoretical contribution/Originality: The study is among very few studies that have examined ownership structures such as foreign ownership, managerial ownership, government ownership, and block ownership on audit fees in a developing country context and Ghana.Practitioner/Policy implication: This study found that the higher agency conflict through ownership structures will give rise to the higher audit fees paid to external auditors, which managers and auditors should consider in future assignments.Research limitation/implication: The study is limited by geographical area (Ghana), and as such future studies can conduct cross-country analysis of ownership structures on audit fees.

Sign in / Sign up

Export Citation Format

Share Document