Does CEO-Auditor Dialect Sharing Impair Pre-IPO Audit Quality? Evidence from China

Using a sample of Chinese to-be-listed firms during the period of 2006–2012, this study examines the influence of CEO-auditor dialect sharing (CADS) on pre-IPO audit quality and further investigates the moderating effects of auditor reputation and audit firm industry specialization. On the basis of...

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Bibliographic Details
Main Author: Du, Xingqiang (Author)
Format: Electronic Article
Language:English
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Published: Springer Science + Business Media B. V 2019
In: Journal of business ethics
Year: 2019, Volume: 156, Issue: 3, Pages: 699-735
Further subjects:B The social identity theory
B The collusive effect
B Audit firm industry specialization
B Auditor reputation
B Pre-IPO audit quality
B CEO-auditor dialect sharing (CADS)
B Discretionary accruals
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Description
Summary:Using a sample of Chinese to-be-listed firms during the period of 2006–2012, this study examines the influence of CEO-auditor dialect sharing (CADS) on pre-IPO audit quality and further investigates the moderating effects of auditor reputation and audit firm industry specialization. On the basis of information in personal identification cards, this study hand-collects data about CADS, and then provides strong and consistent evidence to show that CADS is significantly positively related with discretionary accruals (the inverse proxy for audit quality), suggesting that CADS leads to the collusion between the CEO and the signing auditors, elicits pre-IPO earnings management, and eventually impairs pre-IPO audit quality. Moreover, both auditor reputation and audit firm industry specialization attenuate the positive effect of CADS on discretionary accruals. Furthermore, sensitivity tests suggest that above findings are robust to different measures of CADS and discretionary accruals, and above conclusions still stand after controlling for the endogeneity. Lastly, the findings using the post-IPO sample further validate the negative association between CADS and pre-IPO audit quality.
ISSN:1573-0697
Contains:Enthalten in: Journal of business ethics
Persistent identifiers:DOI: 10.1007/s10551-017-3571-x