Accounting Fraud, Audit Fees, and Government Intervention in China

Abstract

We analyze the economic consequence of government intervention on the incidence of accounting fraud and audit fees of both Big 4 and local big auditors on Chinese audit market in the period 2006–2013. In 2009, Chinese government issued favorable polices to local big auditors and required certain Chinese companies to give priority to these auditors. We find that market share of Big 4 auditors is quite stable before and after government intervention, but market share of local big auditors increases at the cost of local small auditors after intervention. Although audit fee premiums of both local big and Big 4 auditors have increased after intervention, the positive effect of local big auditors on audit fee premiums has significantly decreased. Further, both Big 4 and local big auditors are not likely to reduce the incidence of accounting fraud in pre- and post-intervention period. Our results suggest that Chinese government support to local auditors does not significantly enhance these auditors’ competitiveness in terms of audit fee and audit quality.

Citation

Yang, J. and Sung, H.-C. (2017), "Accounting Fraud, Audit Fees, and Government Intervention in China", Advances in Pacific Basin Business Economics and Finance (Advances in Pacific Basin Business, Economics and Finance, Vol. 5), Emerald Publishing Limited, Leeds, pp. 101-120. https://doi.org/10.1108/S2514-465020170000001005