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Positive spillover effect and audit quality: a study of cancelling China’s dual audit system
Author(s) -
Zhang Rui,
Wong Raymond M. K.,
Tian Gaoliang,
Fonseka Mohan M.
Publication year - 2021
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12563
Subject(s) - spillover effect , audit , quality audit , business , accounting , dual (grammatical number) , china , quality (philosophy) , mainland china , joint audit , internal audit , economics , political science , art , philosophy , literature , epistemology , law , microeconomics
The mandatory dual‐audit and dual‐reporting system (DADRS) for mainland Chinese firms cross‐listed in Hong Kong (AH firms) was abolished in 2010. This study quantifies a positive spillover effect from Hong Kong‐based auditors in the DADRS and examines whether and to what extent this affects the audit quality of AH firms. We find that AH firms exposed to a stronger positive spillover effect have higher audit quality, and the loss of this effect drives the declining audit quality of AH firms after they cancelled the DADRS. This study is among the first empirical works on this research topic.