Information Sharing Between Mutual Funds and Auditors

70 Pages Posted: 27 Jan 2019 Last revised: 15 Dec 2021

See all articles by Ole-Kristian Hope

Ole-Kristian Hope

University of Toronto - Rotman School of Management

Pingui Rao

Jinan University - Management School

Yanping Xu

Jinan University

Heng Yue

Singapore Management University - School of Accountancy

Date Written: December 14, 2021

Abstract

This paper examines whether there is information sharing between mutual funds and their auditors about the auditors’ other listed firm clients. Using data from the Chinese market, we find that mutual funds earn higher profits from trading in firms that share the same auditors. The effects are more pronounced when firms have a more opaque information environment and when the audit partners for the fund and the partners for the listed firm share school ties. The evidence is consistent with information flowing from auditors to mutual funds, providing mutual funds with an information advantage in firms that share the same auditors. Our findings are robust to the use of audit-firm M&As as exogenous shocks and several other robustness checks. We further find that auditors benefit by charging higher audit fees for mutual fund clients and by improving their audit quality for listed firm clients. Our study provides evidence of bi-directional information sharing between two important market intermediaries.

Keywords: Information Sharing, Mutual Funds, Auditors, China, Mutual Fund Investments, Trading Profits, Emerging Markets, Guanxi, Audit Quality, Audit Fees

JEL Classification: F30, G11, G23, G30, G32, M10, M40, M41, M42

Suggested Citation

Hope, Ole-Kristian and Rao, Pingui and Xu, Yanping and Yue, Heng, Information Sharing Between Mutual Funds and Auditors (December 14, 2021). Available at SSRN: https://ssrn.com/abstract=3313541 or http://dx.doi.org/10.2139/ssrn.3313541

Ole-Kristian Hope (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/FacultyAndResearch/Faculty/FacultyBios/Hope.aspx

Pingui Rao

Jinan University - Management School ( email )

No. 601, West Huangpu Road
Guangzhou, Guangdong 510632
China

Yanping Xu

Jinan University ( email )

Guangzhou, Guangdong 510632
China

Heng Yue

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

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