Corruption, Accounting Firm Size and Audit Fee Premium—Evidence from Chinese Listed Companies

Le Zhang

doi:10.4236/chnstd.2016.53011

Abstract

China is playing an increasingly important role in the global economy and the economic transformation becomes the most pressing need at this stage. “Corruption governance”, and “anti-corruption” are hot topics which are discussed by people from all works of life. The main purpose of this paper is to examine the relationship between corruption and audit fee premium under the back-ground of China’s special institutional environment. Based on firms listed on the Shanghai and Shenzhen Stock Exchanges from 2007-2012, the paper verifies that compared with the domestic accounting firms, the international big four firms charge higher audit fees. More importantly, the empirical result finds that corruption has a positive effect on the relationship between firm size and audit fee premium. In other words, corruption governance will decrease the audit fee premium. This study contributes to improved understanding of the influence of anti-corruption wave in China.

Highlights

After the 18th National Congress of the Communist Party of China, the anti-corruption wave sets off a new round of high tide and receives extensive attention of the society from all walks of life
The institutional environment is not perfect in China which is in the period of economic transition; bribery is regarded as an effective way to fight for scarce resources, seek asylum and reduce the risk of it being investigated after violations for some listed companies and accounting firms
The mean of Big4 is 0.049 and this suggests that about 5 percent of non-financial listed company invites international big four accounting firms to providing audit service and most of the company choose domestic accounting firms

Summary

Introduction

After the 18th National Congress of the Communist Party of China, the anti-corruption wave sets off a new round of high tide and receives extensive attention of the society from all walks of life. From 2007 to 2012, China’s corruption perceptions index scores have improved and still in. Corruption, Accounting Firm Size and Audit Fee Premium—Evidence from Chinese Listed Companies. Media reports about high even incredible audit fees that the accounting firm charges are under heated discussion. The audit fees being charged by the international big four accounting firms are significantly higher than domestic firms and the gap can reach dozens of times. Does the difference between international and domestic accounting firms audit fee disappear after taking the listed companies size and other company characteristic variables into consideration? One is after controlling company characteristic variables and audit opinion; the significant gap between accounting firms’ audit fees will disappear or continue to exist. The other one is to examine the relationship between corruption and audit fee premium and explain the internal mechanism Does audit fees premium phenomenon exist in China? The other one is to examine the relationship between corruption and audit fee premium and explain the internal mechanism

Objectives

Results

Conclusion