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Strategic deviance and auditor selection

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  • Xueyan Dong
  • Yijing Cui
  • Jingyu Gao

Abstract

Using data of Chinese A-share non-financial listed companies spanning years 2003–2018, we examine whether a firm’s business strategy that deviates from industry conventions influences corporate governance mechanisms, particularly the probability of choosing high-quality external auditors. We document a significantly positive correlation between a firm’s strategic deviance and high-quality auditor engagement. The exacerbation of agency conflict is an important driver for firms with strategic deviance to hire high-quality auditors. Moreover, we find evidence that hiring Big 4 auditors can curb earnings management and capital occupation of major shareholders in firms with a deviant strategy. We conclude that strategically deviant firms hire high-quality auditors due to agency conflicts.

Suggested Citation

  • Xueyan Dong & Yijing Cui & Jingyu Gao, 2021. "Strategic deviance and auditor selection," China Journal of Accounting Studies, Taylor & Francis Journals, vol. 9(1), pages 81-112, January.
    • Handle: RePEc:taf:rcjaxx:v:9:y:2021:i:1:p:81-112
    DOI: 10.1080/21697213.2021.1927769
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    Cited by:

    1. Ahsan Habib & Dinithi Ranasinghe & Ahesha Perera, 2024. "Business strategy and strategic deviation in accounting, finance, and corporate governance: A review of the empirical literature," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(1), pages 129-159, March.
    2. Wen, Wen & Qiao, Fei & He, Ying, 2023. "Strategic deviation and corporate green innovation," Finance Research Letters, Elsevier, vol. 54(C).

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