Accounting Webinar (2020-16)

Topic: Reputation Recognition and Audit Outcomes: Evidence from Chinese Auditors

Speaker: Donghui Wu, The Chinese University of Hong Kong

Time: Wednesday, Dec 2nd, 10:00-11:30 a.m

Place: Microsoft Teams

Abstract:

Reputation has long been recognized as an important mechanism to mitigate opportunistic behavior in the audit market. However, whether and how reputation motivates auditors to provide high-quality audits is empirically not clear. We exploit the Chinese audit market, where a group of auditors is titled “senior CPAs.” Representing the highest professional recognition, the designation of senior CPA enhances auditors’ reputation in an observable manner. Based on a difference-in-differences design, we find that, following the senior-CPA designation, auditors improve audit quality in terms of audit reporting and audited financial statements. Such a reputation effect is more pronounced in regions with more developed market institutions, but do not differ between large and small audit firms. The senior-CPA designation is also followed by several market consequences, including higher audit-fee premiums commanded and larger audit-market shares gained by the senior CPAs, and higher market valuation of earnings audited by the senior CPAs. Overall, our study provides novel evidence on how the reputation mechanism shapes auditor behavior and matters to capital market participants.

Introduction:

Prof. Donghui Wu holds BA and MA degrees in accountancy from Xiamen University and a PhD in accountancy from The Chinese University of Hong Kong (CUHK). He is also a Certified Public Accountant (non-practicing) of China. He is currently a Professor at CUHK Business School and the Director of Centre for Institutions and Governance of CUHK. Prior to joining CUHK, he taught at Lingnan University and Hong Kong Polytechnic University. Prof. Wu has broad research interests in accounting, auditing, and corporate finance, with a special focus on the emerging and transitional economy of China. He is currently Associate Editor of China Journal of Accounting Research and Ad Hoc Editor for Contemporary Accounting Research.

https://www.bschool.cuhk.edu.hk/staff/wu-donghui/

Your participation is warmly welcomed!