Research Article
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Year 2023, Volume: 4 Issue: 2, 181 - 198, 27.12.2023
https://doi.org/10.58767/joinbat.1356303

Abstract

References

  • Abdel-Khalik, A. R. (1993). Why do private companies demand to audit? A case for organizational loss of control. Journal of Accounting, Auditing & Finance, 8(1), 31-52. doi.org/10.1177/0148558X9300800103
  • Barbera, F., & Hasso, T. (2013). Do we need to use an accountant? The sales growth and survival benefits to family SMEs. Family Business Review, 26(3), 271-292. doi.org/10.1177/0894486513487198
  • Ben-Hassoun, A., Aloui, C., & Ben-Nasr, H. (2018). Demand for audit quality in newly privatized firms in the MENA region: Role of internal corporate governance mechanisms audit. Research in International Business and Finance, 45, 334-348. doi.org/10.1016/j.ribaf.2017.07.167
  • Carey, P., Simnett, R., & Tanewski, G. (2000). Voluntary demand for internal and external auditing by family businesses. Auditing: a Journal of Practice & Theory, 19(s-1), 37-51. doi.org/10.2308/aud.2000.19.s-1.37
  • Carey, P. J. (2015). External accountants’ business advice and SME performance. Pacific Accounting Review, 27(2), 166-188. doi/10.1108/PAR-04-2013-0020/full/html
  • Chong, H. G. (2008). Auditing in China. Journal of Corporate Accounting & Finance, 19(6), 49-54. doi/pdf/10.1002/jcaf.20433
  • Chow, C. W. (1982). The demand for external auditing: Size, debt, and ownership influences. Accounting Review, 272-291. https://www.jstor.org/stable/pdf/247014.pdf
  • Chu, A. G., Du, X., & Jiang, G. (2011). Buy, lie, or die: An investigation of Chinese ST firms’ voluntary interim audit motive and auditor independence. Journal of Business Ethics, 102(1), 135–153. doi:10.1007/sl0551-01 1-0804-2
  • Collis, J., Jarvis, R., & Skerratt, L. (2004). The demand for the audit in small companies in the UK. Accounting and Business Research, 34(2), 87-100. doi/abs/10.1080/00014788.2004.9729955
  • Corten, M., Steijvers, T., & Lybaert, N. (2015). The demand for auditor services in wholly family-owned private firms: the moderating role of generation. Accounting and Business Research, 45(1), 1-26. doi.org/10.1080/00014788.2014.959462
  • Croson, R., & Gneezy, U. (2009). Gender differences in preferences. Journal of Economic Literature, 47(2), 448–474. doi: 10.1257/jel.47.2.448
  • Dedman, E., Kausar, A., & Lennox, C. (2014). The demand for audit in private firms: recent large-sample evidence from the UK. European Accounting Review, 23(1), 1-23. doi.org/10.1080/09638180.2013.776298
  • Defond, M. L., Zhang, F., & Zhang, J. (2020). Auditing research using Chinese data: what’s next?. Accounting and Business Research, 1-14.
  • Du, X., & Lai, S. (2018). Financial distress, investment opportunity, and the contagion effect of low audit quality: Evidence from China. Journal of Business Ethics, 147(3), 565-593. doi.org/10.1007/s10551-015-2986-5
  • Du, X., Yin, J., & Hou, F. (2018). Auditor human capital and financial misstatement: Evidence from China. China Journal of Accounting Research, 11(4), 279-305. doi.org/10.1016/j.cjar.2018.06.001
  • Enterprise Surveys, The World Bank http://www.enterprisesurveys.org
  • Fan, J. P., & Wong, T. J. (2005). Do external auditors perform a corporate governance role in emerging markets? Evidence from East Asia. Journal of Accounting Research, 43(1), 35-72. doi.org/10.1111/j.1475-679x.2004.00162.x
  • Hay, D., & Davis, D. (2004). The voluntary choice of an auditor of any level of quality. Auditing: A Journal of Practice & Theory, 23(2), 37-53. doi.org/10.17130/ijmeb.2017331321.
  • Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360. doi.org/10.1016/0304-405X(76)90026-X
  • Jiang, H., Habib, A., & Zhou, D. (2015). Accounting restatements and audit quality in China. Advances in Accounting, 31(1), 125-135. doi.org/10.1016/j.adiac.2015.03.014
  • Lin, H. L., & Yen, A. R. (2016). The effects of IFRS experience on audit fees for listed companies in China. Asian Review of Accounting, 24(1), 43-68. doi/10.1108/ARA-02-2014-0028
  • Niemi, L., Kinnunen, J., Ojala, H., & Troberg, P. (2012). Drivers of voluntary audit in Finland: to be or not to be audited?. Accounting and Business Research, 42(2), 169-196. Doi: 10.1080/00014788.2012.653742
  • Ojala, H., Collis, J., Kinnunen, J., Niemi, L., & Troberg, P. (2016). The demand for voluntary audit in micro‐companies: Evidence from Finland. International Journal of Auditing, 20(3), 267-277.doi: 10.1111/ijau.12070
  • Rennie, M., Senkow, D., Rennie, R., & Wong, J. (2003). Deregulation of the private corporation audit in Canada: Justification, lobbying, and outcomes. Research in Accounting Regulation, 16, 227-241. Doi: 10.1016/S1052-0457(02)16014-0
  • Seow, J. L. (2001). The demand for the UK small company audit an agency perspective. International Small Business Journal, 19(2), 61-79. doi.org/10.1177/0266242601192004
  • Tauringana, V., & Clarke, S. (2000). The demand for external auditing: managerial share ownership, size, gearing and liquidity influences. Managerial Auditing Journal, 15(4), 160-168. doi/10.1108/02686900010322353
  • Wooldridge, J. M. (2012). Introductory econometrics: A modern approach. Mason, OH: SouthWestern Cengage Learning.
  • Xiao, J. Z., Yang, S., Zhang, X., & Firth, M. (2016). Institutional arrangements and government audit independence in China. Abacus, 52(3), 532-567. doi.org/10.1111/abac.12086
  • Yang, J., & Sung, H. C. (2017). Accounting fraud, audit fees, and government intervention in China. In Advances in Pacific Basin Business Economics and Finance (pp. 101-120). Emerald Publishing Limited. doi.org/10.1108/S2514-465020170000001005
  • https://www.acuitymag.com/business/big-four-remain-a-force-in-china, accessed on 30/11/2019
  • https://www.stata.com/manuals/rprobit.pdf, accessed on 03/11/2023

Effects of Indebtedness, Taxes and Financial Distress on the Demand for Non-Mandatory External Audit: Evidence from the Chinese Firms

Year 2023, Volume: 4 Issue: 2, 181 - 198, 27.12.2023
https://doi.org/10.58767/joinbat.1356303

Abstract

This paper aims to examine the determinants of firms’ demand for non-mandatory external audit in China. Although the demand for non-mandatory external audit has often been investigated for the western economies, we are the first to present evidence for the China by using a unique dataset that the World Bank provided. Using enterprise surveys to estimate the likelihood of firms engaging non-mandatory external audit, the paper uncovers how the indebtedness, tax inspection probability, and the financial distress affect the demand for non-mandatory external audit. The results indicate a positive association between tax inspection probability and demand for external audit. Contrary to the previous literature, the likelihood of demanding external audit diminishes as financial distress level of the firm rises. This result indicates relatively high audit costs for the financially distressed firms that can not afford to cover their non-operational costs.

References

  • Abdel-Khalik, A. R. (1993). Why do private companies demand to audit? A case for organizational loss of control. Journal of Accounting, Auditing & Finance, 8(1), 31-52. doi.org/10.1177/0148558X9300800103
  • Barbera, F., & Hasso, T. (2013). Do we need to use an accountant? The sales growth and survival benefits to family SMEs. Family Business Review, 26(3), 271-292. doi.org/10.1177/0894486513487198
  • Ben-Hassoun, A., Aloui, C., & Ben-Nasr, H. (2018). Demand for audit quality in newly privatized firms in the MENA region: Role of internal corporate governance mechanisms audit. Research in International Business and Finance, 45, 334-348. doi.org/10.1016/j.ribaf.2017.07.167
  • Carey, P., Simnett, R., & Tanewski, G. (2000). Voluntary demand for internal and external auditing by family businesses. Auditing: a Journal of Practice & Theory, 19(s-1), 37-51. doi.org/10.2308/aud.2000.19.s-1.37
  • Carey, P. J. (2015). External accountants’ business advice and SME performance. Pacific Accounting Review, 27(2), 166-188. doi/10.1108/PAR-04-2013-0020/full/html
  • Chong, H. G. (2008). Auditing in China. Journal of Corporate Accounting & Finance, 19(6), 49-54. doi/pdf/10.1002/jcaf.20433
  • Chow, C. W. (1982). The demand for external auditing: Size, debt, and ownership influences. Accounting Review, 272-291. https://www.jstor.org/stable/pdf/247014.pdf
  • Chu, A. G., Du, X., & Jiang, G. (2011). Buy, lie, or die: An investigation of Chinese ST firms’ voluntary interim audit motive and auditor independence. Journal of Business Ethics, 102(1), 135–153. doi:10.1007/sl0551-01 1-0804-2
  • Collis, J., Jarvis, R., & Skerratt, L. (2004). The demand for the audit in small companies in the UK. Accounting and Business Research, 34(2), 87-100. doi/abs/10.1080/00014788.2004.9729955
  • Corten, M., Steijvers, T., & Lybaert, N. (2015). The demand for auditor services in wholly family-owned private firms: the moderating role of generation. Accounting and Business Research, 45(1), 1-26. doi.org/10.1080/00014788.2014.959462
  • Croson, R., & Gneezy, U. (2009). Gender differences in preferences. Journal of Economic Literature, 47(2), 448–474. doi: 10.1257/jel.47.2.448
  • Dedman, E., Kausar, A., & Lennox, C. (2014). The demand for audit in private firms: recent large-sample evidence from the UK. European Accounting Review, 23(1), 1-23. doi.org/10.1080/09638180.2013.776298
  • Defond, M. L., Zhang, F., & Zhang, J. (2020). Auditing research using Chinese data: what’s next?. Accounting and Business Research, 1-14.
  • Du, X., & Lai, S. (2018). Financial distress, investment opportunity, and the contagion effect of low audit quality: Evidence from China. Journal of Business Ethics, 147(3), 565-593. doi.org/10.1007/s10551-015-2986-5
  • Du, X., Yin, J., & Hou, F. (2018). Auditor human capital and financial misstatement: Evidence from China. China Journal of Accounting Research, 11(4), 279-305. doi.org/10.1016/j.cjar.2018.06.001
  • Enterprise Surveys, The World Bank http://www.enterprisesurveys.org
  • Fan, J. P., & Wong, T. J. (2005). Do external auditors perform a corporate governance role in emerging markets? Evidence from East Asia. Journal of Accounting Research, 43(1), 35-72. doi.org/10.1111/j.1475-679x.2004.00162.x
  • Hay, D., & Davis, D. (2004). The voluntary choice of an auditor of any level of quality. Auditing: A Journal of Practice & Theory, 23(2), 37-53. doi.org/10.17130/ijmeb.2017331321.
  • Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360. doi.org/10.1016/0304-405X(76)90026-X
  • Jiang, H., Habib, A., & Zhou, D. (2015). Accounting restatements and audit quality in China. Advances in Accounting, 31(1), 125-135. doi.org/10.1016/j.adiac.2015.03.014
  • Lin, H. L., & Yen, A. R. (2016). The effects of IFRS experience on audit fees for listed companies in China. Asian Review of Accounting, 24(1), 43-68. doi/10.1108/ARA-02-2014-0028
  • Niemi, L., Kinnunen, J., Ojala, H., & Troberg, P. (2012). Drivers of voluntary audit in Finland: to be or not to be audited?. Accounting and Business Research, 42(2), 169-196. Doi: 10.1080/00014788.2012.653742
  • Ojala, H., Collis, J., Kinnunen, J., Niemi, L., & Troberg, P. (2016). The demand for voluntary audit in micro‐companies: Evidence from Finland. International Journal of Auditing, 20(3), 267-277.doi: 10.1111/ijau.12070
  • Rennie, M., Senkow, D., Rennie, R., & Wong, J. (2003). Deregulation of the private corporation audit in Canada: Justification, lobbying, and outcomes. Research in Accounting Regulation, 16, 227-241. Doi: 10.1016/S1052-0457(02)16014-0
  • Seow, J. L. (2001). The demand for the UK small company audit an agency perspective. International Small Business Journal, 19(2), 61-79. doi.org/10.1177/0266242601192004
  • Tauringana, V., & Clarke, S. (2000). The demand for external auditing: managerial share ownership, size, gearing and liquidity influences. Managerial Auditing Journal, 15(4), 160-168. doi/10.1108/02686900010322353
  • Wooldridge, J. M. (2012). Introductory econometrics: A modern approach. Mason, OH: SouthWestern Cengage Learning.
  • Xiao, J. Z., Yang, S., Zhang, X., & Firth, M. (2016). Institutional arrangements and government audit independence in China. Abacus, 52(3), 532-567. doi.org/10.1111/abac.12086
  • Yang, J., & Sung, H. C. (2017). Accounting fraud, audit fees, and government intervention in China. In Advances in Pacific Basin Business Economics and Finance (pp. 101-120). Emerald Publishing Limited. doi.org/10.1108/S2514-465020170000001005
  • https://www.acuitymag.com/business/big-four-remain-a-force-in-china, accessed on 30/11/2019
  • https://www.stata.com/manuals/rprobit.pdf, accessed on 03/11/2023
There are 31 citations in total.

Details

Primary Language English
Subjects Business Administration
Journal Section Research Articles
Authors

Elmas Yaldız Hanedar 0000-0002-2996-3498

Gizel Busem Sayıl 0000-0002-8828-978X

Publication Date December 27, 2023
Submission Date September 6, 2023
Published in Issue Year 2023 Volume: 4 Issue: 2

Cite

APA Yaldız Hanedar, E., & Sayıl, G. B. (2023). Effects of Indebtedness, Taxes and Financial Distress on the Demand for Non-Mandatory External Audit: Evidence from the Chinese Firms. Journal of Business and Trade, 4(2), 181-198. https://doi.org/10.58767/joinbat.1356303