Public Communication of Audit Risks and Related-Party Transactions: Evidence from China
This paper examines whether and how firms' engagement in related-party transactions (RPTs) is shaped by public communication of audit risks as required by the expanded audit report. Using the phased regulatory changes in China and a difference-in-differences design with firm fixed effects and m...
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sg-smu-ink.soa_research-30512024-01-04T05:18:12Z Public Communication of Audit Risks and Related-Party Transactions: Evidence from China HOPE, Ole-Kristian YUE, Heng ZHONG, Qinlin This paper examines whether and how firms' engagement in related-party transactions (RPTs) is shaped by public communication of audit risks as required by the expanded audit report. Using the phased regulatory changes in China and a difference-in-differences design with firm fixed effects and matching, we find that firms significantly reduce their RPTs after the adoption of expanded audit reports (EARs). To investigate potential mechanisms, we find that (1) investor scrutiny increases after the adoption of EARs, (2) the reduction of RPTs is more pronounced when EARs are more likely to attract investor attention, and (3) the reduction of RPTs is weaker when firms are less concerned about investor scrutiny. The results suggest that EARs can attract investor scrutiny and increase the possible penalty associated with self-dealing, thus motivating firms to reduce RPTs. 2023-11-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/soa_research/2024 info:doi/10.2308/AJPT-2021-184 https://ink.library.smu.edu.sg/context/soa_research/article/3051/viewcontent/PublicComm_AuditRisks_av.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University related-party transactions public communication of audit risks expanded audit report China RPT auditing self-dealing real effects of disclosure Accounting Asian Studies Corporate Finance |
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related-party transactions public communication of audit risks expanded audit report China RPT auditing self-dealing real effects of disclosure Accounting Asian Studies Corporate Finance HOPE, Ole-Kristian YUE, Heng ZHONG, Qinlin Public Communication of Audit Risks and Related-Party Transactions: Evidence from China |
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This paper examines whether and how firms' engagement in related-party transactions (RPTs) is shaped by public communication of audit risks as required by the expanded audit report. Using the phased regulatory changes in China and a difference-in-differences design with firm fixed effects and matching, we find that firms significantly reduce their RPTs after the adoption of expanded audit reports (EARs). To investigate potential mechanisms, we find that (1) investor scrutiny increases after the adoption of EARs, (2) the reduction of RPTs is more pronounced when EARs are more likely to attract investor attention, and (3) the reduction of RPTs is weaker when firms are less concerned about investor scrutiny. The results suggest that EARs can attract investor scrutiny and increase the possible penalty associated with self-dealing, thus motivating firms to reduce RPTs. |
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text |
author |
HOPE, Ole-Kristian YUE, Heng ZHONG, Qinlin |
author_facet |
HOPE, Ole-Kristian YUE, Heng ZHONG, Qinlin |
author_sort |
HOPE, Ole-Kristian |
title |
Public Communication of Audit Risks and Related-Party Transactions: Evidence from China |
title_short |
Public Communication of Audit Risks and Related-Party Transactions: Evidence from China |
title_full |
Public Communication of Audit Risks and Related-Party Transactions: Evidence from China |
title_fullStr |
Public Communication of Audit Risks and Related-Party Transactions: Evidence from China |
title_full_unstemmed |
Public Communication of Audit Risks and Related-Party Transactions: Evidence from China |
title_sort |
public communication of audit risks and related-party transactions: evidence from china |
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Institutional Knowledge at Singapore Management University |
publishDate |
2023 |
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https://ink.library.smu.edu.sg/soa_research/2024 https://ink.library.smu.edu.sg/context/soa_research/article/3051/viewcontent/PublicComm_AuditRisks_av.pdf |
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