The Empirical Study of the Effect of the Merging on Audit Quality in Local Accounting Firms
|School||Dongbei University of Finance|
|Keywords||merger of accounting firms auditing quality discretional accruals|
Due to Certified Public Accountant (CPA) maintains the principal-agent relation between the investors and the administrators in an independent third-party way to make the capital market develop effectively, it is an industry that is worthy of being paid attention to. That is why audit quality which is the only standard to measure the professional level of this industry becomes researching hot spot. In recent years, with the merger waves of Chinese accounting firms rising again and again, the effect of merger on audit quality has strongly aroused scholars’attention.After making a general survey of the development history of CPA industry, we find that it is a history of merger. In modern times, because of the merger, the Big Four Accounting Firms are well known in the world. Accounting Firms make use of merger to increase their market share speedily, so that they could enhance independence, professional abilities and audit quality. To a great extent, it powerfully motivates the development of CPA industry and makes the Accounting Firms grow stronger in the cruel competition of the market.Looking back to the development of Chinese CPA industry, we find that it has underwent three wave of merger throughout the whole industry in the short30years. And the main reason is the motivation of the administrative power. With the implement of opening-door policy, since China joined the World Trade Organization (WTO), our economy and trade have gone out of our country and have been in line with the world to be an important constituent part of the world economy increasingly. But at this time, domestic CPA industry just started, it has lagged behind the world big Accounting Firms far away. Being aware of that, the government authorities, supervision department, industrial organization have not only issued policy documents to encourage accounting firms to become stronger, but also improved the barriers of securities and futures industry to motivate merger. Will mergers of Chinese Accounting Firms which are motivated by this special strength be like the foreign ones(the audit quality will rise as Accounting Firms become stronger) that are conducted in market mechanism? Much research has been conducted in China, but no unified conclusions have been reached. Because of few of data and empirical study, it is essential to conduct more research and reach reliable conclusions at last.In my paper, first of all, three theories that are relate to the relationship between merger and audit quality and our special background of Chinese Accounting Firms’merger were all analyzed theoretically, then the hypothesis that is relate to the effect that merger has on audit quality are been reached. Then, treating Chinese Accounting Firms that were merging at the final stage of the third merging wave(2009) as research object and treating discretional accruals of clients which have been got rid of opinions of standardized auditing as the measurement standard of audit quality, we have empirically studied five-year (from2007to2011) samples data which was obtained from A-share listed companies. It contained descriptive statistics and correlation analysis of data before and after the merger, multiple regression of the continuous five-year data and the robustness test of the model.Through the above empirical study, some conclusions have been arrived at as follows:(1) as a whole, merger between Accounting Firms has a positive influence on audit quality, but it is not remarkable;(2) at the beginning of merger between Chinese Accounting Firms, audit quality can not rise instantly, and it even descends sometimes;(3) after the integration period of merger that lasts about three years, audit quality will rise remarkably.The main contribution in this paper:(1) we have enriched the empirical literature in this field. Domestic research to a large extent refers to normative research, and there are less empirical study and no unified conclusions.(2) at the beginning of merger between Chinese Accounting Firms, audit quality can not rise instantly, and it even descends sometimes.(3) The audit quality before and after merger was analyzed year by year, we reached the conclusions:merger need a period of integration that will last about three years, then the audit quality will rise remarkably.