Purpose The purpose of this study is to examine the impact of Confucianism on auditor changes by highlighting the role of the cultural embeddedness mechanism in audit contracts from the perspective of credit governance. Design/methodology/approach Using a unique sample of Chinese A-share listed firms from 2008 to 2018, this study uses logit regression as the baseline methodology while controlling for macro-level factors and firm-level characteristics, as well as industry and year fixed effects. This study also conducts different mediation/channel analyses, endogeneity tests (using two-stage least squares and difference-in-differences techniques) and robustness checks. Findings The findings show that the embeddedness of Confucianism in a corporation reduces auditor changes. Furthermore, the channel analyses (using moral self-discipline, social trust, professional ethics and the quality of accounting information as four potential channels) reveal that Confucianism can improve moral credit and consolidate the cultural foundation of credit governance. Specifically, the stronger the embeddedness of Confucianism, the more stable the auditing contract. Finally, Confucianism in formal and informal systems can be mutually substituted. Originality/value There is limited research on how culture affects auditing contracts. This study offers new contributions and extends the literature on the connection between cultural embeddedness and contract stability. Confucianism has the potential to strengthen the efficiency of credit governance and maintain the stability of contracts. This study offers a thoughtful orientation toward duly using Confucianism vis-à-vis credit governance.
This study discusses the impact of earnings persistence on abnormal audit fees and explores the mechanism between earnings persistence and abnormal audit fees. The results show that the stronger the earnings persistence is, the lower the abnormal audit fees are. The earnings persistence only has a significant impact on the positive abnormal audit fees, and the impact on the negative abnormal audit fees is not obvious. Furthermore, it is found that the negative correlation between the earnings persistence and abnormal audit fees has obvious heterogeneity; that is, it is more significant in companies with low environmental uncertainty and state-owned companies. The mechanism test shows that earnings persistence reduces abnormal audit fees by improving company operating risk, which proves the “Risk Compensation View” of abnormal audit fees to a certain extent. The research provides an important reference for the management and shareholders to eliminate abnormal audit fees and for the regulatory authorities to regulate audit fees.
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