Executive Integrity, Audit Opinion, and Fraud in Chinese Listed Firms
42 Pages Posted: 14 May 2011 Last revised: 24 Jun 2013
Date Written: October 1, 2011
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: Suggested Citation