PurposeThe purpose of this paper is to examine whether the presence of returnees serving on the audit committee affects auditor choice in emerging markets.Design/methodology/approachUsing a logistic model, this study tests the relationship between the presence of returnees in the audit committee and auditor selection and how this relationship varies with the level of agency costs. The authors also perform several other additional analyses to ensure the robustness of the results, including propensity score matching, Heckman’s two-stage model and change analysis.FindingsUsing A-share listed companies in China from 2008 to 2016, the authors find a positive association between the presence of audit committee returnees and a demand for high-quality auditors and such association is strengthened in firms with a higher level of agency costs. The authors further find that discretionary accruals and the incidence of financial restatements are lower in firms with audit committee returnees.Research limitations/implicationsAlthough this study focuses on audit committee members with foreign study or foreign work experience, it remains to be seen if similar effects could be achieved through foreign ownership or work experience with foreign customers or suppliers.Originality/valueThis study provides evidence on a new channel of international knowledge spillover through which the emigration of talent increases board monitoring by demanding high-quality auditors in an emerging economy.
We examine whether the social capital index of the county where the bank is headquartered is associated with the ambiguity of tone measures constructed from the textual analysis of banks’ 10-K filings. We hypothesize and find that banks located in high social capital areas exhibit lower ambiguous tone in their 10-K filings. Furthermore, the impact of social capital on management’s 10-K disclosure for banks located in high social capital areas is not mitigated during recessionary periods when management may have more unfavorable news to report. Unlike other studies that suggest that social norms can be forsaken when motive and opportunity exist, our results suggest that social capital is reasonably entrenched in banks’ reporting. In contrast, we find that banks located in low social capital areas report more ambiguously during recessionary periods when management may have to report unfavorable news.
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