Can audit play an effective role in the charity governance?

Limei Cao and Limin Zhang

Nankai Business Review International, 2013, vol. 4, issue 3, 230-247

Abstract: Purpose - The purpose of this paper is to test the relationship between external auditor selection and charity donation, that is, whether the governance role of external audit is effective and how it plays in China's charitable market. Design/methodology/approach - Using data from 2005 to 2009 of China's national charity, the paper applies empirical regression method to test the hypothesis. Findings - Empirical evidence suggests that, when charities select national Big 100 as the auditors, the governance role of audit plays effectively, thus attracts more donators. When charities select successful bidders of Civil Affairs Bureau as the auditors, the governance role of audit cannot play effectively, thus will not increase donation significantly. Research limitations/implications - Charities' annual report disclosure is not ample, so research samples could not include the regional charities, and in self‐selection model, independent variables do not include audit fee which could affect the results of self‐selection. Practical implications - To some extent, the above conclusion suggests governance effect of external audit exist in the charitable market, and the effects depend on high quality audit. In view of the governance effect of high quality audit, the paper's conclusion could provide reference for the current non‐profits governance mechanism construction, at the same time, Civil Affairs Bureau should further improve the tender evaluation content and make them more objective and quantification when they bid the financial auditor, also, they should not be restricted charity choose auditor such as high quality outside the bidding scope. Originality/value - First, previous literature of external audit research mainly gathered in capital market, but charity market different from the capital market, it is significance for whole non‐profit organization. Second, the paper's conclusion could provide some empirical evidence available for the perfection of charity governance mechanisms.

Keywords: Auditor selection; Donation; Charity; Governance role (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:eme:nbripp:v:4:y:2013:i:3:p:230-247

DOI: 10.1108/NBRI-07-2013-0022

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