The high-speed railway opening and audit quality: Evidence from China

Abstract

This study examines the effect of the high-speed railway operation on audit quality proxied by absolute abnormal accruals. Auditing is a complex activity that relies heavily on professional judgement and sufficient evidence. Auditors usually need to conduct on-the-spot investigations and face-to-face conversations to obtain auditing evidence. In this process, transportation plays an important role. From the perspective of geography, this paper examines the impact of the high-speed railway implementation on audit quality. It finds that the high-speed railway operation significantly improves audit quality. The results are robust to parallel tests and when using the Big Eight auditors to proxy for audit quality. Further analyses suggest that this effect is more pronounced in firms audited by non-local auditors and firms located in non-first-tier cities. Taken together, these results suggest that the opening of high-speed railways is effective in improving audit quality.