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

217 NTU Management Review Vol. 30 No. 2 Aug. 2020 Fourth, some researchers investigate auditor-client realignment decisions by focusing on the potential economic consequences from such actions. For instance, Wells and Loudder (1997) examine the effect of auditor-client realignment decisions and demonstrate that companies tend to experience negative market returns when their auditors resign. Griffin and Lont (2010) also document that the market is likely to reduce firm value when the auditors choose to cease their relationships with clients. In particular, the extent of economic consequences derived from the auditor-client realignment decision is particularly pronounced when the audited clients encounter higher bankruptcy risks. Fifth and finally, researchers conduct studies to examine whether clients will take directional changes (i.e., moving up or moving down) into consideration when pondering auditor-client realignments. Building on the political-economic perspective, Eichenseher, Hagigi, and Shields (1989) and Chan, Lin, and Mo (2006) analyze auditor switches and show that the market tends to react negatively toward a downward auditor switch (e.g., from a Big-4 international accounting firm to a local/regional accounting firm). On the other hand, the market tends to react favorably with positive CARs to companies switching their auditors from a local/regional accounting firm to a Big-4 international accounting firm because upward switches of accounting firms are likely to signal better audit quality (Aldhizer et al., 2009). Based on these empirical results, one would expect that corporate executives, as clients, would take the direction of an auditor switch into account when making realignment decisions. 2.2 Auditing Research Using China as a Setting In addition to the empirical evidence reported in the prior literature using Western economies as the research setting, numerous scholars have examined auditing issues among Asian countries during the past two decades. Many of these studies investigate auditing issues by employing either a cross-country or a single-country setting. As Lin and Lin (2016) point out, cross-country studies tend to focus on audit demand, while single- country research is likely to investigate the effects of the regulatory changes on audit demand and audit supply. 4 Among articles addressing auditing issues in Asia and published in highly-ranked academic journals, many of them take advantages of the available databases to incorporate the unique attributes of Chinese business, regulatory, 4 For a detailed review of studies on audit quality in Asia, please refer to Lin and Lin (2016).