Executive integrity,audit opinion,and fraud in Chinese listed firms |
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| Institution: | 1. School of Public Finance and Taxation, Southwestern University of Finance and Economics, China;2. Schulich School of Business, York University, Toronto, Canada;3. The University of Edinburgh Business School, United Kingdom;4. Manchester Business School, University of Manchester, United Kingdom;1. School of Accounting, Southwestern University of Finance and Economics, China;2. School of Management, Fudan University, China;3. School of Economics, Finance and Management, University of Bristol, UK;4. School of Economics and Business Administration, Beijing Normal University, China;1. Whitman School of Management, Syracuse University, Syracuse, NY 13244-2450, United States;2. Lindner College of Business, University of Cincinnati, Cincinnati, OH 45221, United States;3. Gatton College of Business and Economics, University of Kentucky, Lexington, KY 40506, United States;1. Research Institute of Economics and Management, Southwestern University of Finance and Economics, 555 Liutai Avenue, Wenjiang District, Chengdu 611130, China;2. School of Management, Guangzhou University, 230 Wai Huanxi Road, Guangzhou Higher Education Mega Center, Guangzhou 510006, China;3. School of Insurance, Southwestern University of Finance and Economics, 555 Liutai Avenue, Wenjiang District, Chengdu 611130, China;1. Energy Studies Institute, National University of Singapore;2. Xiamen University |
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| Abstract: | We examine the influence of auditors on mitigating corporate fraud in China, which is known to have weak legal enforcement, weak investor protection along with tight control of the media and labour unions. We find that firms with executives that have lower integrity, indicated by a greater degree of earnings manipulation, are associated with higher propensity of regulatory enforcement actions against corporate fraud in the subsequent year. We show that this effect is moderated by the issuance of a modified audit opinion report by the auditors. This finding implies that auditors can serve as external governance mechanism to discourage executives with lower integrity in committing fraud. Our results have policy implications for further strengthening auditor independence in emerging countries like China. |
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