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

219 NTU Management Review Vol. 30 No. 2 Aug. 2020 requirements into consideration, publicly listed companies in China are required to disclose auditor-client realignments as a significant event in their annual financial reports. However, they do have the flexibility regarding whether to release their reasons to realign with auditors. Hence, disclosing reasons to auditor switches is entirely voluntary and subject to managerial discretion. In spite of its voluntary nature, revealing the reasons for an auditor-client realignment may allow market participants to differentiate companies disclosing reasons from those that choose not to do so, and thus discern the implications behind such decisions. 6 Moreover, disclosing the reasons for the realignment could be informative to market participants and regulators since it may reveal what factors have been taken into account by auditors and clients, in addition to what have been described in the auditor selection processes (Aldhizer et al., 2009). Applying these rationales to this study, we argue that corporate executives have incentives to seriously take up the government initiative to help to expand and strengthen domestic accounting practices. One of the reasons has to do with the supervisory power of China’s MOF on publicly listed companies. This power affects whether companies can issue bonds and/or offer additional equity shares when needed. The other reason has to do with the MOF’s influences over financial institutions. Since most of Chinese financial institutions are owned by the government, the MOF plays an influential role as to whether a company can obtain loans from these institutions. Because CICPA issued this initiative to support the MOF’s ambition to develop and strengthen the domestic accounting profession, revealing the reasons to realign with auditors demonstrates that corporate executives are willing to go along with the government, which in turn may benefit the affected companies. Therefore, the issuance of an initiative of this kind strengthens corporate executives’ willingness to make the reasons for auditor-client realignment decisions known to the regulators, as well as to make them available to the general public. As to the effect of state ownership on managerial decisions to disclose the reasons for auditor-client realignments, one may argue that SOEs have strong incentives to support the said initiative because they are under governmental control. To demonstrate their willingness to support it, corporate executives of SOEs can choose to release their reasons for auditor-client realignments. On the other hand, Wang et al. (2008) argue that SOEs 6 Chan et al. (2006) examine and find the existence of agency problems among Chinese enterprises that are dominated by government ownership. To mitigate this issue, in our view, corporate executives should supply credible accounting information, including the willingness to provide full disclosures via quality audits.