مالکیت دولت، اندازه حسابرسی شرکت و قیمت گذاری حسابرسی : مدارک و شواهد از چین

The present study provides empirical evidence on the impact of government ownership on audit pricing behaviour based on data from Chinese listed companies between 2001 and 2008. Our findings, having controlled for auditor choice, indicate that state-owned enterprises (SOEs) incur significantly lower audit fees than non-SOEs. The results also reveal a significant interaction between the type of SOE (i.e., owned by central vs. local government) and audit firm size, which also affects audit fees. More specifically, large auditors tend to charge the central-SOEs lower audit fees than local-SOEs (province, city and county), while small auditors charge central-SOEs higher fees than local-SOEs. We explore a political economy rationale from a supply-side perspective in explaining the results.

The impact of government ownership on audit fees remains largely under-studied despite the development of an extensive body of literature on audit pricing over the last few decades (e.g., Hay et al., 2006). The growing debate on the effects of government ownership on perceived business risks and corporate governance (Faccio, 2009 and Gul, 2006) nevertheless warrants further study in this area. The present study addresses this gap in the audit literature by examining the impact of government ownership, type of state-owned enterprises (SOEs) and audit firm size on audit fees using data of Chinese listed firms from 2001 to 2008. More specifically, the present study examines whether (i) there is a significant difference in audit fees between SOEs and non-state owned enterprises (hereafter non-SOEs), and (ii) there is an interaction between the type of government ownership, (i.e., local-versus central-SOEs) and audit firm size affecting audit pricing of SOEs.1 In doing so, we adopt a supply-side perspective and draw on the political economy literature (Leuz and Oberholzer-Gee, 2006) to argue that business risks tend to vary with the extent and type of government ownership, and that they, in turn, affect audit risk assessment and ultimately audit fees. In addition, we contend that undertaking the present study within the Chinese capital market context is warranted and timely as it is characterised by varying levels of government ownership of business entities and a highly competitive audit market (Chen et al., 2007). Furthermore, the Chinese capital market, fuelled by a rapidly developing national economy, is increasingly looking to the auditing profession to enhance market reliability and efficiency. Thus, further research on audit fee behaviour in China is likely to inform issues related to both auditor independence and audit quality management. Empirical evidence on government ownership and audit fee behaviour in China, with the exception of that provided by Wang et al. (2008), however, remains scant. Evidence based on Wang et al.’s (2008) analysis of Chinese firm data for the period 2001–2003 suggests that compared to non-SOEs, SOEs (both local and central) tend to choose small local auditors.2 However, further analysis of the implications of firm ownership and auditor fees indicates inconsistent findings. As noted by Wang et al. (2008), “compared to non-state firms (non-SOEs) the (fee) discount is smaller for central-SOEs but not for local-SOEs, consistent with our demand argument for central-SOEs but not for local-SOEs” p. 128. Our study extends and complements prior studies in two ways. First, we utilise data with a longer timeframe (2001–2008) of Chinese listed firms so as to capture the effect of various regulatory and accounting professional developments on audit fees in China in recent years. In particular, investor awareness and activism have substantially grown as a result of corporate misbehaviour and scandal (Chen et al., 2010). For example, Chen et al. (2010) note that subsequent to the Supreme Court issuing a Notice on accepting civil lawsuits against false statements in the securities market in 2002, an unprecedented escalation of lawsuits has occurred against firms and auditors. The developments, in turn, have increased the pressure on corporate governance including audit choice and quality. However, empirical evidence on audit pricing behaviour in this rapidly evolving environment remains scant. Second, unlike Wang et al. (2008) who had predominantly undertaken an audit demand approach to rationalising audit fee behaviour, we explore a supply-side perspective drawing from the political economy literature for understanding the impact of government ownership on audit pricing. More specifically, central to Wang et al.’s (2008) argument is that the demand for small local auditors by SOEs in general may explain the lower fee discounts incurred by such entities. However, their results, as noted above, were not consistent with those predicted by an auditor choice rationale in the case of local SOEs relative to non-SOEs. Given these mixed results, we explore a supply-side perspective (i.e., auditors’ viewpoint) to better understand audit behaviour from an alternative viewpoint. More specifically, given that there are political benefits to be gained from association with SOEs, it is likely auditors’ perceptions of overall audit risk of clients may be affected by the nature of ownership of the firm (i.e., government or not), which ultimately may affect their audit pricing. Given that such a perspective remains largely neglected in extant studies on audit fee behaviour of Chinese firms, such an approach appears appropriate and worthy of further consideration. The rest of the paper is organized as follows. Section 2 provides discussion of hypotheses development followed by a delineation of the research method in Section 3. Section 4 presents empirical results including robustness tests, and Section 5 discusses conclusions.

This study examines the relationship between government ownership and audit fees using data from Chinese listed firms. Our study contributes to the literature in this area in several ways. First, we find SOEs incur lower fees relative to non-SOEs, which suggests the political connection between firms and governments plays an important role in audit risk assessment. Our results based on firm data from 2001 to 2008 corroborate and complement Wang et al.’s (2008) earlier findings, where SOEs compared to non-SOEs are seen to pay lower audit fees. Furthermore, the current study explicitly takes into account auditor selection bias, whereas prior studies (Wang et al. 2008) have merely associated SOEs’ lower audit fees with their choice of small auditors. We find, even after controlling for the self-selection bias, that SOEs still incur lower audit fees. This line of inquiry into pricing behaviour better lends itself to a supply-side perspective for an alternative explanation for the effect of government ownership on audit fees. In addition, this study finds that large auditors and small auditors respond differently to the type of SOE (i.e., central-versus local-SOEs). More specifically, large auditors charge local-SOEs higher audit fees compared to central-SOEs, while small auditors charge central-SOEs higher fees. We contend that, in the case of local-SOEs, large auditors’ pricing is likely to be swayed by the political costs outweighing the benefits because large auditors, who tend to be more concerned over reputation, are likely to include a risk premium on engagement of local-SOEs who have been found to exercise poorer governance and transparency. In the case of small auditors, economies of scale are likely to be a critical factor in explaining the higher fees for central-SOEs who tend to be larger and more diversified than local-SOEs. Our findings highlight the importance of considering both audit firm size and ownership type in the future audit pricing research, especially studies conducted in developing economies. Another contribution of this study is that it is one of the few that has undertaken a supply-side perspective to explain the link between government ownership and audit pricing behaviour among Chinese listed firms, and our empirical results are aligned with such a perspective. Specifically, our analysis suggests fee discounts to be more pronounced when SOEs receive more government subsidies, or when such firms reside in less-decentralized regions where governments are more prone to provide political benefits. This finding supports a supply-side argument that auditors, in general, tend to factor in the political benefits more heavily than the political costs in their audit risk assessment and pricing of SOEs compared to non-SOEs. Future studies, thus, could further examine whether the lower audit fees accrued by SOEs may impair audit quality. The results of this study need to be interpreted in light of several limitations. First, the link between government ownership and audit fees is assumed as being affected through the extent of audit risk assessment and audit efforts. No systematic evaluation has been undertaken to assess whether auditors actually assess the inherent risk of SOEs to be lower, nor the extent to which such assessment may lower audit effort in such circumstances compared to non-SOEs. Future studies may adopt other methods, such as interviews of auditors or experimental studies, to assess the impact of government ownership on auditor risk perceptions and inherent risk assessment. However, our data also reveals a negative association between the provision of political subsidies and audit fees which, to some extent, eases this concern and supports a political benefit argument. Second, an alternative explanation for our results is that SOEs are able to exercise their political power in negotiating lower audit fees with auditors. Unfortunately, due to the inability to observe negotiating power, we could not examine such a possibility. Nevertheless, with increasing scrutiny and regulatory oversight of market governance and SOE management in China, the intervening impact of political negotiating power on our results is likely to be minimized.