Reputational Implications for Partners After a Major Audit Failure: Evidence from China

doi:10.1007/s10551-015-2770-6

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	Reputational Implications for Partners After a Major Audit Failure: Evidence from China
	He, Xianjie 1; Pittman, Jeffrey 2; Rui, Oliver 3
刊名	JOURNAL OF BUSINESS ETHICS
	2016-11
卷号	138 期号:4 页码:703-722
关键词	Audit failure Partners' reputation Audit quality
ISSN号	0167-4544
DOI	10.1007/s10551-015-2770-6
英文摘要	We analyze whether audit partners suffered damage to their professional reputations with the demise of Zhongtianqin (ZTQ), formerly the largest audit firm in China, after an audit failure enabled a major client, Yin-guangxia (YGX), to fraudulently exaggerate its earnings in a high-profile scandal resembling the Andersen-Enron events in the US. This involves evaluating whether the reputational damage sustained by partners implicated in the scandal spreads to other partners in the same audit firm. We isolate whether impaired reputation impedes partners who were not complicit in the ZTQ-YGX events from attracting new clients or keeping existing ones. Our evidence implies that the market shares of these partners fell after ZTQ's collapse, supporting that guiltless partners' reputations were tarnished. We also find that these partners are less likely to be employed by reputable audit firms. The clients of these partners tend to have lower earnings response coefficients, implying that investors downgrade the perceived quality of their audits. Moreover, compared to a matched sample, the former ZTQ partners tend to charge lower audit fees after the firm's collapse. Finally, we exploit the unique structure of ZTQ to provide evidence consistent with the prediction that the former partners from the branch that handled the YGX audits experienced worse damage to their reputations. In a setting with minimal auditor discipline stemming from civil litigation, our results lend support to the intuition that partners' reputation concerns motivate them to protect audit quality by closely monitoring other partners in the firm.
WOS研究方向	Business & Economics ; Social Sciences - Other Topics
语种	英语
出版者	SPRINGER
WOS记录号	WOS:000385349600006
内容类型	期刊论文
源URL	[http://10.2.47.112/handle/2XS4QKH4/1186]
专题	上海财经大学
通讯作者	Rui, Oliver
作者单位	1.Shanghai Univ Finance & Econ, Shanghai, Peoples R China; 2.Mem Univ Newfoundland, St John, NF, Canada; 3.China Europe Int Business Sch, Shanghai, Peoples R China
推荐引用方式 GB/T 7714	He, Xianjie,Pittman, Jeffrey,Rui, Oliver. Reputational Implications for Partners After a Major Audit Failure: Evidence from China[J]. JOURNAL OF BUSINESS ETHICS,2016,138(4):703-722.
APA	He, Xianjie,Pittman, Jeffrey,&Rui, Oliver.(2016).Reputational Implications for Partners After a Major Audit Failure: Evidence from China.JOURNAL OF BUSINESS ETHICS,138(4),703-722.
MLA	He, Xianjie,et al."Reputational Implications for Partners After a Major Audit Failure: Evidence from China".JOURNAL OF BUSINESS ETHICS 138.4(2016):703-722.