Determinants and consequences of voluntary switches to Chinese auditors in Hong Kong |
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Authors: | Zhenfeng Liu Stephen Lin |
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Affiliation: | 1. University of Michigan-Flint, United States;2. Florida International University, United States |
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Abstract: | Hong Kong market regulators have permitted 12 large Chinese accounting firms to audit the financial statements of Chinese firms that cross list in Hong Kong (i.e., H-share firms) since 2010. This paper examines the characteristics of H-share firms that voluntarily replaced their Hong Kong (HK) auditors with Chinese auditors, and the market reaction to auditor switches following this policy. We find that 38 out of 147 H-share firms voluntarily switched to Chinese auditors during 2011–2013. Switching firms are larger in size and are less likely to use Big4; they also have less need for external financing, a longer cross listing history, and a lower percentage of foreign revenue. We also find that investors negatively react to the auditor switches from HK non-Big4 to China non-Big4, but do not react to the auditor switches from HK Big4 to China Big4. This suggests that investors perceived lower audit quality for China non-Big4. |
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Keywords: | Corresponding author at: School of Management, University of Michigan-Flint, 303 E. Kearsley Street, Flint, MI 48502, United States. M40 M42 M48 Auditor switches Audit quality Market reaction |
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