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

Do Government Initiatives and Reasons for Auditor-Client Realignment Influence Audit Fees and Audit Quality? Evidence from China 216 convey information to market participants. Different from Hackenbrack and Hogan (2002); however, Aldhizer et al. (2009) reveal that auditor switches may positively affect CARs if a company switches its auditor from a local/regional accounting firm to a Big-4 international accounting firm, as such switch could be perceived as being upward, which implies better audit quality. Second, auditor-client realignments can be important to accounting firms. As auditors are concerned regarding audit quality (e.g., Lee, Chen, and Tsai, 2020; Lin and Duh, 2020), accounting firms could take the auditor-client realignments as a window of opportunity to recruit and retain high quality clients. Thus these accounting firms not only can lower litigation risks, but also may be able to restructure the composition of their clients and create more desirable client portfolios. Echoing the possibilities mentioned above, Landsman, Nelson, and Rountree (2009) also indicate that accounting firms may drive auditor switches because they are sensitive to clients’ business risks. Furthermore, auditor-client realignments can be made to address the accounting firms’ other concerns. For instance, Cassell, Giroux, Myers, and Omer (2012) explore whether Big-N accounting firms take a client’s corporate governance mechanisms into consideration when making client acceptance decisions. Since governance mechanisms are crucial in assessing client risks, clients’ characteristics may also affect auditors’ decisions as to whether to realign with those clients. Third, auditor-client realignments can be viewed from the clients’ standpoints. For instance, corporate executives may use auditor-client realignments to engage successor auditors with a higher level of expertise than the skills possessed by the predecessor auditors in order to address their needs. Consistent with this view, Healy and Lys (1986) examine non-Big-8 clients’ reactions when their auditors decide to merge with Big-8 accounting firms. They find that non-Big-8 audit clients may continue engaging with Big-8 acquirers following the mergers if they could benefit from a Big-8 firm’s specialized services and/or reputation. On the other hand, non-Big-8 audit clients that do not perceive the benefits to continue contracting with Big-8 auditors after the mergers are more likely to switch to other non-Big-8 accounting firms. In addition, corporate executives may use realignments as opportunities to negotiate with their auditors in order to cut down the amount of professional fees paid. Like Johnson and Lys (1990) argue, clients have incentives to purchase audit services from the least costly suppliers. Thus, auditor-client realignments provide opportunities for corporate executives to negotiate lower audit fees if they choose to do so.