臺大管理論叢 NTU Management Review VOL.30 NO.2

213 NTU Management Review Vol. 30 No. 2 Aug. 2020 3 Since there are no formal punishments attached in the initiative for not following it, some argue that firm management may not take the initiative seriously. However, the MOF has supervisory power over Chinese publicly listed firms, and regulators also can influence financial institutions regarding loan decisions. Moreover, the MOF has influences on whether public firms can issue additional bonds and/ or equity shares. Under these scenarios, firm management will consider switching auditors even though there are no explicit punishments for not following the initiative. Driven by these incentives and comparing companies according to state ownership, the initiative to expand and strengthen accounting practices may also influence managerial decisions as to whether to reveal specific reasons for realigning with auditors. annual financial reports. However, corporate executives working for Chinese companies have the flexibility regarding whether to reveal the reasons for such realignments. Because such revelations are voluntary in nature, and are subject to managerial discretion as to whether to make the realignment reasons known to the general public, some companies decide to disclose their reasons of realignments while others choose not to do so. These possible scenarios provide valuable opportunities for us to investigate whether the government initiative to expand and strengthen its domestic accounting profession and the reasons behind auditor-client realignment decisions jointly affect audit fees and audit quality. To fulfill our objectives established herein, we investigate three questions empirically. First, we postulate that besides the government initiative, state ownership may influence auditor-client realignment decisions. This conjecture is made because executives employed by State-owned Enterprises (SOEs) and Non-state-owned Enterprises (NSOEs) may have different degrees of motivation or levels of pressure to follow governmental initiatives. To examine this issue, we divide the studied firms into SOEs and NSOEs. We argue that both the government initiative to expand and strengthen domestic accounting practices and the state ownership may influence auditor-client realignment decisions, 3 and thus we first explore the joint effect of the government initiative and state ownership on managerial decisions to disclose auditor-client realignment reasons. Second, the auditor-client realignment decisions could lead to new rounds of audit fee negotiations between auditors and their clients. While engaging in these negotiations, the reasons behind auditor-client realignment decisions may tip the balance of power between the two parties. As China’s MOF and CICPA push for the initiative, this force could change the market dynamics and create a new wave of auditor switches. Consequently, auditor-client realignments probably will alter the mechanisms of the audit market and influence the audit fee structure in China. Therefore, it would be interesting to