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Do auditors consider alleged bribery when accepting clients? Evidence from Chinese non-state-owned enterprises

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  • Lufei Ruan
  • Haiyan Zhang

Abstract

This study examines the relationship between firm-level alleged bribery and audit-related decisions for Chinese non-state-owned enterprises (NSOE). Using a sample of listed NSOEs in 2010–2016, we find that alleged bribery is negatively correlated with the probability of being accepted by top-tier auditors and is positively correlated with audit fees. These findings suggest that top-tier auditors are more reluctant to accept corrupt firms and also charge higher audit fees. Also, we find that the negative correlation between alleged bribery and the probability of being accepted by top-tier auditors is strengthened after an anti-corruption campaign launched by the Chinese government in 2013 and/or after the crackdown of provincial-level officials, and is more pronounced in less developed regions. Finally, we find that alleged bribery is positively associated with the level of earnings management, implying that alleged bribery likely increases irregularities in financial statements.

Suggested Citation

  • Lufei Ruan & Haiyan Zhang, 2021. "Do auditors consider alleged bribery when accepting clients? Evidence from Chinese non-state-owned enterprises," Accounting and Business Research, Taylor & Francis Journals, vol. 51(6-7), pages 744-776, November.
    • Handle: RePEc:taf:acctbr:v:51:y:2021:i:6-7:p:744-776
    DOI: 10.1080/00014788.2020.1868283
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    Cited by:

    1. Abdul Rahman Al Natour & Naim Salameh Al-Qadi & Rasmi Meqbel & Hala Zaidan & Hamzah Al-Mawali & Manaf Al-Okaily, 2023. "The Role of Privatisation in Sustaining Auditor Independence: Evidence from the Developing Markets," Sustainability, MDPI, vol. 15(8), pages 1-17, April.
    2. Frederick Kibon Changwony & Anthony Kwabena Kyiu, 2024. "Business strategies and corruption in small‐ and medium‐sized enterprises: The impact of business group affiliation, external auditing, and international standards certification," Business Strategy and the Environment, Wiley Blackwell, vol. 33(1), pages 95-121, January.

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