Do Financial Analysts Perform a Monitoring Role in China? Evidence from Modified Audit Opinions

Abacus, Forthcoming

50 Pages Posted: 14 Apr 2012 Last revised: 9 Jun 2015

See all articles by Jiandong Chen

Jiandong Chen

Southwestern University of Finance and Economics

Rong Ding

University of Warwick

Wenxuan Hou

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

Sofia Johan

Florida Atlantic University - Finance; Tilburg Law and Economics Center (TILEC)

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2015

Abstract

This paper examines the impact of analyst coverage on the financial reporting quality of firms as reflected by modified audit opinions (MAOs). Using a sample of Chinese listed firms between 2003 and 2009, we find that analyst coverage, which serves as an external governance mechanism, helps to enhance the financial reporting quality of Chinese listed firms. Such effect is more pronounced for non-state-owned enterprises (i.e. private firms), in that they are more dependent on external equity capital and therefore under greater pressure from analysts to provide high-quality accounting information. Furthermore, analysts plays a more effective role for firms with stronger incentives to manipulate financial reports. Our findings are robust to the control of endogeneity issue.

Keywords: Modified Audit Opinion (MAO), Analyst Coverage, Analyst Following, State-owned enterprises, China

JEL Classification: M4, G3

Suggested Citation

Chen, Jiandong and Ding, Rong and Hou, Wenxuan and Johan, Sofia A., Do Financial Analysts Perform a Monitoring Role in China? Evidence from Modified Audit Opinions (June 1, 2015). Abacus, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2039672 or http://dx.doi.org/10.2139/ssrn.2039672

Jiandong Chen

Southwestern University of Finance and Economics ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

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

Rong Ding

University of Warwick ( email )

Warwick Business School
University of Warwick
Coventry, CV4 7AL
United Kingdom

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 )

Sofia A. Johan

Florida Atlantic University - Finance ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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