Abstract

Based on the situation of customers change of the 27 accounting firms punished by China Securities Regulatory Commission (CSRC) in the capital market of China from 1999 to 2016, this paper found the CSRC punishment will cause those clients requiring high financial statement quality to change firm. However, the customers caring more about audit discount and long-term cooperation relationship with auditors will choose to stay. This shows that the intimate relationship between auditors and customers as well as audit cost discount can increase Switching Cost, thus offsetting "Signaling" effect and slowing the customer churn from firm which already received administrative penalty. However, the regulation does not change the fact that the financial report quality of remaining customers is not high.

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