Do goodwill impairments affect audit opinions? Evidence from China

He, Ziye; Chen, Dong; Tang, Jianxin

doi:10.1016/j.cjar.2021.03.002

Cited by 13 publications

(5 citation statements)

References 37 publications

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“…Hogan and Wilkins (2008) suggest that auditors are sensitive to both increased control risk and increased inherent and/or information risk. Additionally, He et al (2021) provide evidence supporting the mediating role of information risk between goodwill impairments and modified audit opinions. From this perspective, information risk represents a potential mechanism through which major customers' restatements can influence auditors' decisions.…”

Section: Hypothesis Developmentmentioning

confidence: 77%

“…Next, following He et al (2021), we further replace the dependent variable with Audit i,t to capture a more comprehensive understanding of the relationship between the customers' restatements and various types of audit opinions. Audit i,t takes a value of 1 for unmodified opinion, 2 for unmodified opinion with explanatory paragraphs, 3 for modified opinion and 4 for adverse opinion or disclaimer of opinion.…”

Section: Placebo Testmentioning

confidence: 99%

“…First, the analysis of the effect of customers' financial restatements may extend previous studies on factors affecting audit opinions. Previous literature focuses on the firm-specific characteristics (Charles et al, 2010;Kravet and Shevlin, 2010;McEwen et al, 2013;He et al, 2021;Hu et al, 2022); this study provides new evidence about whether financial information from firm's customers, a key stakeholder, can affect audit risk. Second, this paper carries implications for the contagion effects of firm risks along the supply chain, providing insights into how auditors respond to customers' financial restatements of the audited suppliers.…”

Section: Introductionmentioning

confidence: 99%

“…Extensive literature examines auditors’ response to high-risk corporate behaviors, such as earnings management (Chen et al , 2001; Lennox et al , 2018), litigation risk (Lam and Mensah, 2006; Hope and Langli, 2010; Chen et al , 2012), goodwill impairments (He et al , 2021), internal control material weakness opinion (Goh et al , 2013) and environmental information risk (Yao et al , 2019). These factors can increase the probability of a firm receiving a modified audit opinion.…”

Section: Introductionmentioning

confidence: 99%

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Do customers’ financial restatements affect how auditors respond to their suppliers? Evidence from China

Hu,

Qian,

2024

MAJ

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Purpose The purpose of this study is to explore the economic impact of financial restatements by major customers on the audit opinion of their suppliers, showing that non-financial information disclosure potentially helps auditors make better assessments. Design/methodology/approach Using a sample of China’s listed firms from 2007 to 2021, the authors aim to find the relationship between customers’ financial restatements and their suppliers’ audit opinions. Heckman selection model, placebo tests and other robustness checks are used as well. Findings The findings reveal that customers’ financial restatements have a significant effect on the likelihood of suppliers receiving modified audit opinions. This relationship is pronounced when suppliers face a higher level of financial constraints, exhibit poorer accounting conservatism or receive more negative media coverage. Additionally, this effect occurs through increased business risk and information risk, which heightens auditors’ perceived audit risk. Moreover, the study highlights the influence of switching costs, auditor expertise and restatement severity on this relationship. Practical implications Risks originating from customers can spread along the supply chain, emphasizing the necessity for auditors to give heightened attention to both the audited firms and their customer information. Moreover, regulators should carefully consider the important impact of customer information disclosures to maximize the protection of the interests of external information users. Originality/value This study not only confirms the crucial role of customer information disclosures in annual reports for stakeholders and auditors but also contributes to the existing literature on customer–supplier relationships.

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Section: Hypothesis Developmentmentioning

confidence: 77%

Section: Placebo Testmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Do customers’ financial restatements affect how auditors respond to their suppliers? Evidence from China

Hu,

Qian,

2024

MAJ

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“…In particular, capital markets always react quickly once the expected synergies fail to be achieved, such as a decline in operating performance or a large goodwill impairment [ 19 ]. Based on signaling theory, investors may view the corporation more cautiously and be less willing to purchase or hold their shares [ 20 ], which in turn will damage cash flow and increase the financial risk.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

M&A goodwill and corporate technological innovation: The mediating moderating effect of stock pledges

et al. 2022

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Identifying whether and how merger and acquisition (M&A) goodwill influences corporate technology innovation is a critical topic in the context of growing M&A activities. Based on the panel data of 2,634 Chinese non-financial listed companies from 2007 to 2019, this paper adopts multiple linear regression and the Bootstrap method to investigate the impact of M&A goodwill on corporate technological innovation and the mechanism through which M&A goodwill affects technological innovation. The results show that: (1) There is a significant negative correlation between M&A goodwill and technological innovation input, with financial constraints acting as the main channels. (2) Non-private corporations enjoy a higher level of financing capacity in terms of debt and equity compared with private corporations, resulting in the absence of the disincentive effect of M&A goodwill on corporate technological innovation inputs, despite the fact that M&A activities also cause massive resource consumption. (3) Stock pledges by controlling shareholders are effective in alleviating the negative impact of M&A goodwill on technological innovation inputs. Furthermore, our results highlight that simple stock pledge measures capture a significant influence of alleviating financing constraints, thereby decreasing the adverse impact of M&A, and hence need to be adequately considered in future M&A and innovation studies. While enriching the literature on the economic consequences of M&A and the research on stock pledge, this paper also provides micro-evidence for an in-depth understanding of the effect of M&A goodwill on technological innovation.

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