- Apply for Authority
- P-ISSN2765-6934
- E-ISSN2765-7027
- KCI
ISSN : 2765-6934
The Impact of Auditor-Client Traffic Convenience on Earnings Management in China
Yanbin DU (Suzhou Vocational University)
- Downloaded
- Viewed
Abstract
Purpose: This study aims to investigate the impact of auditor-client traffic convenience on accrual -based and real earnings management of the client firms. Research design, data and methodology: Using a sample of firms listed in Shanghai and Shenzhen Stock Exchanges over the period of 2007 to 2018, this paper empirically investigates the association between auditor-client traffic convenience and earnings management. We use three measures of auditor-client traffic convenience: railway traffic convenience, expressway traffic convenience, and air traffic convenience. The accrual-based earnings management is measured by abnormal accruals estimated by industry and year using the Modified Jones Model. Results: Findings indicate that traffic convenience is conducive to detecting and restraining positive accrual earnings management and real earnings management. After changing the measurement of independent variable and dependent variable, including potential omitted variables, the results are statistically unchanged. Further, the research shows that traffic convenience can not only improve audit quality, but also lead to higher fee premiums. Auditors didn’t share with clients the cost reduction benefits caused by traffic convenience. Conclusions: Traffic convenience provides auditors with easy access to the client firms, alleviating the information asymmetry and improving corporate earnings quality. The findings have implications for regulators, audit practitioners and stakeholders.
- keywords
- Travel Convenience, Accrual Earnings Management in China, Real Earnings Management
Reference
Ashbaugh, H., Lafond, R., & Mayhew, B. W. (2003). Do non-audit services compromise auditor independence? Further evidence. Accounting Review, 78(3), 611-639. https://doi.org/10.2308/accr.2003.78.3.611
Asthana, S. C., Raman, K. K., & Xu, H. (2015). U.S.-listed foreign companies' choice of a U.S.-based versus home country-based Big N principal auditor and the effect on audit Fees and earnings quality. Accounting Horizons, 29(3), 631-666. DOI:10.2308/acch-51105
Bae, K. H., René, M., Stulz, & Tan, H. (2008). Do local analysts know more? A cross-country study of the performance of local analysts and foreign analysts. Journal of Financial Economics, 88(3), 581-606. DOI:10.1016/j.jfineco.2007.02.004
Berger, A. N., Miller, N. H., Petersen, M. A., et al. (2005). Does function follow organizational form? Evidence from the lending practices of large and small Banks. Journal of Financial Economics, 76(2), 237-269. https://doi.org/10.1016/j.jfineco. 2004.06.003
Carey, P., & Simnett, R. (2006). Audit partner tenure and audit quality. The Accounting Review, 81(3), 653-676. DOI:10.2308/accr.2006.81.3.653
Choi, A., Choi, J. & Sohn, B. C. (2018). The joint effect of audit quality and legal regimes on the use of real earnings management: International evidence. Contemporary Accounting Research, 35(4), 2225-2257. DOI:10.1111/1911-3846.12370
Choi, J. H., Kim, J. B., Qiu, A. A., & Zang, Y. (2012). Geographic proximity between auditor and client: How does it impact audit quality?. Auditing: A Journal of Practice and Theory, 31(2), 43-72. DOI:10.2308/ajpt-10241
Cohen, D. A.，Dey, A., & Lys, T. Z. (2008). Real and accrualbased earnings management in the pre-and-post-Sarbanes-Oxley periods. The Accounting Review, 83(3), 757-787. DOI:10.2308/accr.2008.83.3.757
Cohen, D. A., & Zarowin, P. (2010). Accrual-based and real earnings management activities around seasoned equity offerings. Journal of Accounting & Economics, 50(1), 2-19. DOI:10.1016/j.jacceco.2010.01.002
Coval, J., & Moskowitz, T. (2001). The geography of investment: informed trading and asset prices. Journal of Political Economy, 109(4), 811-841. https://doi.org/10.1086/322088
DeAngelo, L. E. (1981). Audit size and audit quality. Journal of Accounting and Economics, 3(3), 183-199. DOI:10.1016/0165-4101(81)90002-1
Dechow, P. M., & Dichev, I. (2002) The quality of accruals and earnings: The role of accrual estimation errors. Accounting Review, 77, 35-59. http://dx.doi.org/10.2308/accr.2002.77.s-1.35
Dechow, P. M., Ge, W., & Schrand, C. (2010). Understanding earnings quality: A review of the proxies, their determinants and their consequences. Journal of Accounting and Economics, 50(2-3), 344-401. DOI:10.1016/j.jacceco.2010.09.001
Dechow, P. M., Sloan, R. G., & Hutton, A. P. (1995). Detecting earnings management. Accounting Review, 1995, 70(2), 193-225. DOI:10.2307/258852
DeFond, M., Wong, T. J., & Li, S. (1999). The impact of improved auditor independence on audit market concentration in China. Journal of Accounting & Economics, 28(3), 269-305. https://doi.org/10.1016/S0165-4101(00)00005-7
Degryse, H., & Ongena, S. (2005). Distance, lending relationships, and competition. The Journal of Finance, 60(1), 231-266. DOI:10.1111/j.1540-6261.2005.00729.x
Ewert, R., & Wagenhofer, A. (2005). Economic effects of tightening accounting standards to restrict earnings management. Accounting Review, 80(4), 1101-1124. https://doi.org/10.2308/accr.2005.80.4.1101
Francis, J. R., & Yu, M. D. (2009). Big 4 Office Size and Audit Quality. The Accounting Review, 84(5), 1521-1552. DOI:10.2308/accr.2009.84.5.1521
Guay, W. R., Kothari, S. P., & Watts, R. L. (1996). A market-based evaluation of discretionary-accrual models. Journal of Accounting Research, (34), 83-105. DOI:10.2307/2491427
Hay, D. C., Knechel, W. R., & Wong, N. (2006). Audit fees: A meta-analysis of the effect of supply and demand Attributes. Contemporary Accounting Research, 23(1), 141-19. DOI:10.1506/4XR4-KT5V-E8CN-91GX
Hong, J., Chu, Z., & Wang, Q. (2011). Transport infrastructure and regional economic growth: Evidence from China. Transportation, 38(5), 737-752. DOI:10.1007/s11116-011-9349-6
Ivkovic, Z., & Weisbenner, S. (2005). Local does as local is: Information content of the geography of individual investors’ common stock investments. The Journal of Finance, 60(1), 267-306. DOI:10.1111/j.1540-6261.2005.00730.x
Jensen, K., Kim, J. M., & Yi, H. (2015). The geography of US auditors: Information quality and monitoring costs by local versus non-local auditors. Review of Quantitative Finance & Accounting, 44(3), 513-549. DOI:10.1007/s11156-013-0416-2
Knechel, W., Salterio, S., & Ballou, B. (2007). Auditing: Assurance and Risk, 3rd edn. South-Western College Publishing, Boston, MA
Li, Q., & Song, Y. (2007). The locality of CPA’s firms and its ability in deterring opportunistic earnings management. China Accounting Review, 5(1), 83-94. DOI:CNKI:SUN:ZKJP.0. 2007-01-007
Liberti, J. M., & Petersen, M. A. (2019). Information: hard and soft. Review of Corporate Finance Studies, 8(1), 1-41. DOI:10.1093/rcfs/cfy009
Malloy, C. (2005). The geography of equity analysts. The Journal of Finance, 60(2), 719-755. DOI:10.1111/j.1540-6261.2005.00744.x
Menon, K., & Williams, D. D. (2004). Former audit partners and abnormal accruals. Accounting Review, 79(4), 1095-1118. DOI:10.2308/accr.2004.79.4.1095
Park, B. (2019). Audit committees and managerial influence on audit quality: 'Voluntary' versus 'mandatory' approach to corporate governance. Australian Accounting Review, 29(1), 266-280. https://doi.org/10.1111/auar.12263
Pong, C. M., & Whittington, G. (1994). The determinants of audit fees: Some empirical models. Journal of Business Finance & Accounting, 21(8), 1071-1095. DOI:10.1111/j.1468-5957.1994.tb00365.x
Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of Accounting & Economics, 42(3), 335-370. DOI:10.1016/j.jacceco.2006.01.002
Simunic, D. (1980). The pricing of audit services - Theory and evidence. Journal of Accounting Research, 18, 161-190. DOI:10.2307/2490397
Wang, Q., Wong, T. J., & Xia, L. (2008). State ownership, the institutional environment, and auditor choice: Evidence from China. Journal of Accounting and Economics, 46(1), 112-134. DOI:10.1016/j.jacceco.2008.04.001
Wei, Y. D. (1999). Regional inequality in China. Progress in Human Geography, 23(1), 49-59. DOI: 10.1191/030913299676254572
Zang, A. Y. (2012). Evidence on the trade-off between real activities manipulation and accrual-based earnings management. Accounting Review, 87(2), 675-703. DOI:10.2308/accr-10196
- Downloaded
- Viewed
- 0KCI Citations
- 0WOS Citations