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 218 and professional environments. Reflecting on the results reported, the extant literature examining China documents the effects of regulatory changes on earnings quality (e.g., Chen, Chen, and Su, 2001; Hsu and Wang, 2009; Lin and Lin, 2016; He, Pan, and Tian, 2017), audit quality (e.g., Chen et al., 2001; Chan et al., 2006; Chan and Wu, 2011; Huang et al., 2015; Huang, Chang, and Chiou, 2016; He et al., 2017; Leung, Liu, and Wong, 2019), audit fee (e.g., Hsu and Wang, 2009; Chan and Wu, 2011; Huang et al., 2015; Huang, Chang, and Chiou, 2016; He et al., 2017; Leung et al., 2019), and auditor switches (e.g., Chan et al., 2006). 5 In our view, this study contributes to the audit literature because the auditor-client realignment decisions investigated are driven by the regulatory shift that in turn could influence supply and demand of audit services in China. Moreover, corporate executives working for Chinese enterprises have the flexibility as to whether to disclose their reasons for the realignments or conceal such information to the general public. Hence, building on the evidence reported in the U.S. markets and studies conducted using China as the setting, we develop three research questions in the following subsection. First, both the regulatory requirement in place and the unique corporate ownership structure in China allow us to explore the effect of state ownership and types of the realignment reason on clients’ willingness to whether to reveal their choices. We then proceed to examine the joint effect of the government initiative to expand and strengthen domestic accounting firm practices and the reasons for auditor-client realignment on audit fees and audit quality, respectively. 2.3 Research Questions Several studies have examined and reported the effect of government ownership on enterprises and the institutional environment in China’s capital markets regarding auditor choices and their reporting behavior (e.g., Chan et al., 2006; Wang, Wong, and Xia, 2008; Chan, Lin, and Wong, 2010). Following these prior studies and taking the disclosure 5 Piotroski, Wong, and Zhang (2015) demonstrate that certain special events may influence executives’ decisions. Chen, Kim, Li, and Liang (2018) also report that several personal, market, and institutional factors may affect managerial behavior. To advance our understandings on how special events in China and additional variables identified in these studies could influence the auditor-client realignment decisions, audit fees, and audit quality, researchers could incorporate factors examined and findings reported on both articles in future studies, in order to fully understand and appreciate the dynamics of auditor-client realignment decisions in China.