Common auditors and internal control similarity: Evidence from China |
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| Institution: | 1. The National University of Singapore, Singapore;2. The University of Queensland, Australia;1. School of Accounting, Zhejiang Gongshang University, Hangzhou, China;2. University of Edinburgh, 29 Buccleuch Place, Edinburgh, EH8 9JS, United Kingdom;3. Warwick Business School, University of Warwick, Scarman Road, Coventry, CV4 7AL, United Kingdom;1. University of Edinburgh, UK;2. European Capital Markets Cooperative Research Centre, Pescara, Italy;3. Koç University, Turkey;1. School of Management, Jinan University, No.601, West Huangpu Avenue, Guangzhou, China;2. Department of Accounting and Corporate Governance, Macquarie University, 4 Eastern Road, Sydney, Australia;3. School of Accounting, Nanjing Audit University, 86 West Yushan Road, Nanjing, China |
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| Abstract: | This study investigates how important common auditors are to internal control similarity between two firms. Based on a less concentrated audit market in China, we find that firm-pairs with common auditors enforce a similar internal control system. This inference holds after accounting for other social connections, examining internal control components, using alternative measures of internal control, adopting finer industry classifications, constructing alternative internal control similarity, running auditor switch tests, and addressing endogeneity problems. Additional analyses indicate that auditor style and information sharing serve two underlying mechanisms to undergird the documented relationship. Finally, our evidence suggests that high-centrality firms in auditor networks are associated with better financial reporting. |
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| Keywords: | Common auditors Internal control Auditor networks China M41 M42 |
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