Executive Integrity, Audit Opinion, and Fraud in Chinese Listed Firms

42 Pages Posted: 14 May 2011 Last revised: 24 Jun 2013

See all articles by Jiandong Chen

Jiandong Chen

Southwestern University of Finance and Economics

Douglas J. Cumming

Florida Atlantic University

Wenxuan Hou

University of Edinburgh - Business School; Shanghai Lixin University of Accounting and Finance

Edward Lee

University of Manchester - Alliance Manchester Business School

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2011

Abstract

We examine the influence of auditors on corporate fraud in China. We find lower executive integrity firms are associated with higher propensity of regulatory enforcement actions against corporate fraud in the subsequent year. We then show that this effect is moderated by the issuance of modified audit opinion report by the auditors. This finding implies that auditors can serve an early warning role to discourage low integrity executives from engaging in corporate fraud. Our results have policy implications for further strengthening auditor independence in emerging countries like China.

Keywords: Auditor, earnings management, fraud, integrity, ethics, China

JEL Classification: G15, G30, K22, M41

Suggested Citation

Chen, Jiandong and Cumming, Douglas J. and Hou, Wenxuan and Lee, Edward, Executive Integrity, Audit Opinion, and Fraud in Chinese Listed Firms (October 1, 2011). Emerging Markets Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1839449 or http://dx.doi.org/10.2139/ssrn.1839449

Jiandong Chen

Southwestern University of Finance and Economics ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

HOME PAGE: http://cjd.weebly.com

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Wenxuan Hou (Contact Author)

University of Edinburgh - Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
United Kingdom

HOME PAGE: http://www.wenxuanhou.com

Shanghai Lixin University of Accounting and Finance ( email )

Edward Lee

University of Manchester - Alliance Manchester Business School ( email )

Booth St. West (Crawford House)
Manchester, M15 6PB
United Kingdom

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