Mutual supervision or conspiracy? The incentive effect of multiple large shareholders on audit quality requirements

Lipai Zhang and Biao Li

International Review of Financial Analysis, 2022, vol. 83, issue C

Abstract: Multiple large shareholders may choose to mutual supervise or conspire, thereby affecting the firm's strategy and transactional operations. This paper examines the impact of firms with multiple large shareholders on demand for high-quality audits. Compared with firms with a single large shareholder, firms with multiple large shareholders increase audit cost and increase the probability of hiring a Big Four accounting firm. After a series of robustness checks, this result holds. Furthermore, we find that the shareholding ratio of the largest shareholder tends to increase audit cost and increase the probability of hiring the Big Four. The absolute controlling and non-controlling shareholders tend to increase audit cost and increase the probability of hiring the Big Four. The state-owned firms and large firms with multiple large shareholders tend to increase audit cost and increase the probability of hiring the Big Four. This paper helps to enrich the research on external audit supervision and moral hazard research from the perspective of ownership structure.

Keywords: Multiple large shareholder; Audit quality requirements; Managerial myopia (search for similar items in EconPapers)
JEL-codes: G30 G34 G38 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:83:y:2022:i:c:s1057521922002319

DOI: 10.1016/j.irfa.2022.102274

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