Perceived audit quality, state ownership, and stock price delay: evidence from China

Jun Chen, Wang Dong, Shuo Li and Yu (Tony) Zhang

Asia-Pacific Journal of Accounting & Economics, 2018, vol. 25, issue 1-2, 253-275

Abstract: We examine the effect of audit quality on stock price delay and whether the effect differs between two groups of Chinese firms: state-owned enterprises (SOEs) and non-state-owned enterprises (NSOEs). Using a sample of 15,019 firm-year observations for Chinese listed firms over the period 2001–2011, we find that firms with Big 4 auditors are associated with less stock price delay and this negative association is weaker for SOEs than for NSOEs. Our findings suggest that high-quality auditors play an important role in the price formation process, in that there is less stock price delay, and this role varies across firms with different ownership structures. Additional analyses show that the audit quality of international Big 4 auditors is perceived to be different from that of domestic Big 4 auditors. The effect of the perceived audit quality on price delay is different for SOEs controlled by the central government compared to those controlled by the local governments. Our study contributes to extant research by focusing on the economic consequences of auditor choices and by emphasizing the importance of recognizing ownership type when conducting audit research.Data availability Data used are from public sources identified in this paper.

Date: 2018
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DOI: 10.1080/16081625.2016.1208573

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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