Efficiency and opportunism in auditor quality choice in emerging audit services markets

Waresul Karim Akm and Tony van Zijl

International Journal of Accounting & Information Management, 2013, vol. 21, issue 3, 241-256

Abstract: Purpose - The purpose of this paper is to test the relative strengths of efficiency and opportunistic considerations in making client auditor choice decisions in an emerging audit services market. The authors examine whether the degrees of foreign and institutional shareholdings, audit complexity, industry orientation (i.e. whether the firm belongs to the banking sector), ownership concentration in the hands of domestic sponsor shareholders, state ownership, power concentration in the hands of a CEO who is also the chairperson of the board, and audit risk affect the demand for superior monitoring by Big‐4 auditors. Design/methodology/approach - The authors carry out a multivariate analysis using binary logit regression technique. They test whether efficiency or opportunism rules auditor choice of firms in their sample. Efficiency‐based variables used in the authors' models include foreign shareholding by a multinational parent, institutional shareholding, audit complexity and whether the firm belongs to the banking sector. Opportunism‐based variables include ownership concentration in the hands of domestic sponsor shareholders other than government, government shareholding, power concentration in the hands of a CEO who holds the position of chair as well, and audit risk. Findings - The authors find that opportunistic considerations outweigh efficiency considerations in shaping auditor choice decisions in their sample. Two out of four efficiency arguments (foreign shareholdings in the hands of a multinational parent and institutional shareholding) support efficiency as the main driver of auditor choice while one (client belonging to the banking sector) indicates otherwise. On the other hand, three out of four opportunism arguments (government shareholding, CEO‐chair duality and audit risk) document opportunistic considerations to be the main forces behind auditor choice. The influence of foreign shareholding becomes apparent only when the foreign shareholder is the controlling shareholder. Originality/value - This paper is the first of its kind to address auditor choice in an emerging market context. No other paper looked at auditor choice using efficiency‐opportunism incentives. The paper contributes to our understanding of auditor choice dynamics in emerging markets. The finding that institutional shareholding is associated with choice of high quality auditors is encouraging. Individual small investors can use institutional investors as a shield to protect their investment through the higher quality auditing linked to the presence of institutional investors.

Keywords: Auditor choice; Corporate governance; Emerging markets; Auditors; Bangladesh (search for similar items in EconPapers)
Date: 2013
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:ijaimp:v:21:y:2013:i:3:p:241-256

DOI: 10.1108/IJAIM-08-2011-0027

Access Statistics for this article

International Journal of Accounting & Information Management is currently edited by Dr Xin (Robert) Luo and Professor Han Donker

More articles in International Journal of Accounting & Information Management from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().