Corporate Governance Mechanisms and Auditor Choice: Evidence from China

Noel W. Leung, Mei-Ai Cheng


This paper provides empirical evidence on the association between corporate governance mechanisms and thechoice of high-quality and low-quality auditors (hereafter “auditor choice”) based on firm’s data from Chineselisted firms between 2007 and 2012. Consistent with most literature, this paper adopts Big 4 auditors as theproxy for high-audit quality. Our findings indicate that certain corporate governance factors, ownership of thelargest shareholders, the aggregate of ownership of other large shareholders, percentage of independent directorsin the board, dual-list status and marketization, have significant positive influence on auditor choice. Morespecifically, ownership of the largest shareholders exhibits a U-shape relationship for the auditor choice: in thelower ownership, a Chinese listed firm would prefer a low-quality auditor, while up to the threshold level ofownership, a Chinese listed firm would prefer a high-quality auditor. This paper also explains several possiblereasons why Big 4 auditors are still uncommon in Chinese stock market.

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International Journal of Business and Management   ISSN 1833-3850 (Print)   ISSN 1833-8119 (Online)

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