Auditor Reverse Merger Expertise: Evidence from Chinese Reverse Merger Companies
AUDITING: A Journal of Practice & Theory, Forthcoming
Posted: 19 Apr 2017
Date Written: April 18, 2017
This study investigates if hiring auditors with Chinese reverse-merger expertise affected 182 Chinese companies that executed reverse mergers with U.S. shell companies from 2003 to 2011 to become U.S. publicly traded companies (Chinese Reverse-merger companies, or CRM companies). We find that CRM companies that employ CRM-expert auditors pay higher audit fee premiums and are more likely to up-list to national exchanges, when they are compared to CRM companies with non-CRM-expert auditors. Additional analyses suggest that clients of CRM experts also are more likely to file annual financial reports on time, but CRM-expert auditors are not associated with fewer misstatements in financial reporting or continued trading on national exchanges. This suggests that CRM specialist auditors help clients navigate regulatory requirements for up-listing, but they do not achieve improved financial reporting quality.
Keywords: Auditor selection; Chinese reverse mergers; reverse-merger experts; up-listing
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