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Do auditors respond to media coverage? Evidence from China
journal contribution
posted on 2018-09-01, 00:00 authored by Stephen X Gong, Ferdinand GulFerdinand Gul, Liwei ShanThis paper examines whether news coverage of client firms is associated with their audit fees. Using data from China listed firms during 2004–2013, we find that high coverage client firms are on average charged higher audit fees, irrespective of the media tone. This positive association is stronger for large auditors than for small auditors, and for bad news than for good news. The main results hold for both state-owned enterprises (SOEs) and non-SOEs, and for both politically connected and non-connected firms. The results are robust after controlling for the effects of information asymmetry, auditor choice, internal corporate governance, and alternative measurements of the key variables. Overall, our evidence is supportive of the view that auditors assess high coverage clients as higher risk audits requiring greater audit efforts. We conclude that the financial news media plays a disciplining role in China through its potential to trigger reputational sanctions and regulatory action.
History
Journal
Accounting horizonsVolume
32Issue
3Pagination
169 - 194Publisher
American Accounting AssociationLocation
Lakewood Ranch, Fla.Publisher DOI
ISSN
0888-7993eISSN
1558-7975Language
EnglishPublication classification
C1 Refereed article in a scholarly journalCopyright notice
2018, American Accounting AssociationUsage metrics
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