Can mandatory dual audit reduce the cost of equity? Evidence from China

Rui, Zhang; Wong, Ryc; Lo, Agnes W. Y.; Tian, Gaoliang

doi:10.1080/00014788.2020.1870432

Cited by 3 publications

(3 citation statements)

References 52 publications

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“…Audit quality is negatively correlated with the COE capital. Zhang et al (2021) document that before 2010, Chinese A-share firms that cross-listed on the Hong Kong stock exchange were required to have a dual audit. This requirement was abolished in 2010.…”

Section: Effect Of Audit Quality On the Cost Of Equity Capitalmentioning

confidence: 99%

The impact of audit quality on earnings management and cost of equity capital: evidence from a developing market

Moore

2021

JFRA

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Purpose This study aims to examine the effects of audit quality on earnings management and cost of equity capital (COE) considering the impact of two owner types: government ownership and foreign ownership. Design/methodology/approach The study uses a panel data set of 236 Vietnamese firms covering the period 2007 to 2017. Because the two main dependent variables of the COE capital and the absolute value of discretionary accruals receive fractional values between zero and one, the paper uses the generalised linear model (GLM) with a logit link and the binomial family in regression analyses. The paper uses numerous audit quality measures, including hiring Big 4 auditors or the industry-leading Big 4 auditor, changing from non-Big 4 auditors to Big 4 auditors or the industry-leading Big 4 auditor, and the length of Big 4 auditor tenure. Big 4 companies include KPMG, Deloitte, EY and PwC, whereas the non-big 4 are the other audit companies. Findings The study finds a negative relationship between audit quality and both the COE capital and income-increasing discretionary accruals. The effects of audit quality on discretionary accruals and the COE capital depend on the ownership levels of two important shareholders: the government and foreign investors. Foreign ownership is negatively associated with discretionary accruals; however, the effect is more pronounced in the sub-sample of state-owned enterprises (SOEs), the firms where the government owns 50% or more equity, than in the sub-sample of Non-SOEs. Originality/value To the best of the knowledge, no prior similar study exists that used the GLM with a logit link and the binomial family regression. Global investors may be interested in understanding how unique institutional settings and capital markets of each country impact the financial reporting quality and cost of capital. Further, policymakers of developing markets may have incentives to improve the quality of financial reporting and reduce the cost of capital which should result in attracting more foreign investments.

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Section: Effect Of Audit Quality On the Cost Of Equity Capitalmentioning

confidence: 99%

The impact of audit quality on earnings management and cost of equity capital: evidence from a developing market

Moore

2021

JFRA

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“…The auditing standards of the International Accounting Standards Board (IASB) have kept evolving in recent years [17,18]. However, China's unique auditing standards provide a unique setting to conduct analysis that is less likely to be investigated elsewhere [19]. One of China's exceptional auditing standards is the restriction on minimum audit fees and the release of that restriction [20].…”

Section: Institutional Backgroundmentioning

confidence: 99%

Sustainable Development of Audit Market: Benefits of Audit Price Deregulation in China

Cao

Zhao²,

Wang³

et al. 2022

Sustainability

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Utilizing a unique audit price deregulation policy in China, we examine industry-specialized auditors’ competing strategies in different markets. Our results from the difference-in-difference model reveal that after audit price deregulation, audit fees of industry-specialized auditors in less developed markets become significantly lower than other auditors. Furthermore, we find the decreased audit fees of the industry specialists are not due to the reduced audit effort, and the audit quality is not impaired. On the other hand, industry specialists cannot keep their audit fee premium in more developed markets after the policy. These results indicate that audit price deregulation makes industry-specialized auditors more available, which benefits the market’s sustainable development. Our study contributes significantly to the industry specialized auditor literature by providing novel evidence that industry specialists’ competing strategies could depend on the market’s development.

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“…Corporate governance broadly refers to the supervision and control of the governing body over the object of governance, which is essentially the distribution and checks and balances of corporate control by company executives, board of directors, shareholders, etc., which profoundly affects the development of the company and corporate performance. As the most basic form of corporate governance, the shareholding structure is directly related to the ownership of the company and the control of the shareholders, which constantly affects the operation and development of the company [1][2][3][4].…”

Section: Introductionmentioning

confidence: 99%

Analysis of the Impact of Dual Shareholding Structures on the Governance of Technology-Based Firms

Zhong

2024

HBEM

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As a matter of fact, since the technological revolution, the use of dual shareholding structures has become more and more widespread in technology-based companies as the number of technology-based companies has increased. These start-ups with dual shareholding structures have grown rapidly and have been able to grow into large corporations in a relatively short period of time. On this basis, dual equity structure seems to be a perfect match for many technology-based companies. In order to explore the positive effects and risks of dual equity structure on the corporate governance of technology-based companies, this paper investigates, studies as well as analyzes the issues. According to the analysis, it is concluded that dual equity structure is favorable to consolidate the founder's control over the company, expand financing, but harms the interests of small and medium-sized shareholders, and is detrimental to the equality of shareholders. Overall, these results shed light on guiding further exploration of firm governance.

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Can mandatory dual audit reduce the cost of equity? Evidence from China

Cited by 3 publications

References 52 publications

The impact of audit quality on earnings management and cost of equity capital: evidence from a developing market

The impact of audit quality on earnings management and cost of equity capital: evidence from a developing market

Sustainable Development of Audit Market: Benefits of Audit Price Deregulation in China

Analysis of the Impact of Dual Shareholding Structures on the Governance of Technology-Based Firms

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