Multiple large shareholders and auditor choice: evidence from China
ISSN: 0268-6902
Article publication date: 1 February 2023
Issue publication date: 16 March 2023
Abstract
Purpose
This study aims to examine whether a firm's demand for high-quality auditors is influenced by multiple large shareholders (MLS). As one type of ownership structure, MLS have gained popularity in China recently and have different types of large shareholders, including large institutional shareholder, large foreign shareholder and large state shareholder. The authors also examine whether different types of MLS have heterogeneous impacts on appointing high-quality auditors.
Design/methodology/approach
With a sample of 27,131 firm-year observations from Chinese public companies from 2003 to 2018, the authors use multivariate regressions to examine the effect of MLS on auditor choice. Heckman two-stage analysis, a firm fixed effects model, propensity score matching and difference-in-differences test are used as robustness checks.
Findings
This paper finds that the presence and power of MLS increase the likelihood of appointing high-quality auditors. With regard to the types of MLS, large institutional shareholders and foreign shareholders have significant positive effects on appointing high-quality auditors, while the presence of state-owned large shareholders has no effect on auditor choice. Further analyses reveal that the positive effect of MLS on high-quality auditor choice is more pronounced in firms with severe agency problems and information asymmetry. Taken together, these results suggest that MLS play a monitoring role by demanding high-quality auditors.
Originality/value
This paper contributes to the literature on the determinants of auditor choice. While prior studies primarily focus on the impact of concentrated ownership structure, corporate governance and the pressure from stakeholders on auditor choice, this paper complements the literature by providing evidence from the heterogeneous effects of different types MLS. This paper also extends the literature on the consequences of MLS from the perspective of auditor choice.
Keywords
Acknowledgements
The authors would like to thank Chenkai Ni, Xiao Xiao and participants at the “Accounting, Auditing and Corporate Governance in China” conference for their constructive comments. Xiaoqing Feng acknowledges financial support from Science Foundation of China University of Petroleum, Beijing (2462021YJRC023), Humanities and Social Science Foundation of the Ministry of Education (22YJC790026) and China Postdoctoral Science Foundation (2022M723493). Wen Wen acknowledges financial support from National Natural Science Foundation of China (72002014), Fundamental Research Funds for the Central Universities (2022JJ011, 2022TD001), BFSU Double First-Class Major Signature Research (2022SYLZD001) and Outstanding Talent Support Program of Beijing Foreign Studies University. Ying He acknowledges financial support from National Social Science Foundation of China (22&ZD148, 20AGL015) and Humanities and Social Science Foundation of the Ministry of Education (19YJA630025).
Citation
Feng, X., Wen, W., Ke, Y. and He, Y. (2023), "Multiple large shareholders and auditor choice: evidence from China", Managerial Auditing Journal, Vol. 38 No. 4, pp. 474-513. https://doi.org/10.1108/MAJ-03-2021-3052
Publisher
:Emerald Publishing Limited
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