Ownership concentration, modified audit opinion, and auditor switch: New evidence and method

May Hu, Abdul Muhammad and Jingjing Yang

The North American Journal of Economics and Finance, 2022, vol. 61, issue C

Abstract: This study investigates: 1) how does the ownership structure of listed firms influence the relation between their earnings management behavior and auditor opinion; 2) how does the ownership structure influence the relation between the auditor opinion and auditor switch. We find that the level of listed firms’ earnings management is positively associated with the propensity of being issued modified audit opinions (MAOs) by auditors when their ownership structure is highly concentrated. However, the issuance of MAOs is not associated with the auditor switch under such condition. On the contrary, a high level of earnings management is not associated with the propensity of being issued MAOs when firms’ ownership structure is less concentrated. Further, the issuance of MAOs may increase the likelihood of auditor switch. The empirical findings suggest that auditors may cater for the preferences of the real controller of listed firms when issuing audit opinions. Moreover, the “auditor opinion shopping” behavior by listed firms is also affected by listed firms’ ownership structure.

Keywords: Ownership concentration; Earnings management; Modified audit opinion; Auditor switch; China (search for similar items in EconPapers)
JEL-codes: G32 M41 M42 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:61:y:2022:i:c:s106294082200047x

DOI: 10.1016/j.najef.2022.101692

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