Audit Quality in Declining State Ownership: Evidence from China - RMGS

Description

China has experienced social and economic reforms from the planned economy to a market economy during the past decades. Since then, government control in listed companies has been declined gradually. This research aims to examine the effectiveness of declining government participation during opening-up of capital market, and particularly investigate the impacts of the declining state ownership on auditor independence and audit quality.  Previous studies focus more on how the government participation affects corporate decision, this research aims to examine how the government non-involvement affects auditor’s responses in financial statement audits.  Two key regulatory reforms relevant to restructure of corporate ownership have been identified as exogenous shocks in exploring the impacts of the declining state ownership on audit quality.  The research approach of tracing firms with significant government ownership and associated audit quality in the periods before and after the regulatory shocks will provide a direct evidence on how the change (decline) in government involvement affects auditor independence and audit quality.