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

221 NTU Management Review Vol. 30 No. 2 Aug. 2020 Building on these theoretical arguments and empirical findings, this study postulates that accounting firms will be in a stronger position to negotiate for higher audit fees, if a realignment is driven by client-related reasons. On the other hand, clients will have an upper hand to bargain for lower audit fees, if a realignment serves an accounting firm’s interests such as expanding its market share or strengthening accounting firms’ position to compete for new clients. According to these arguments, this study develops the second research question. Research Question 2: Do the reasons for auditor-client realignment and the government initiative to expand and strengthen accounting practices jointly affect audit fees? When examining the joint effect of the reasons for auditor-client realignment and the government initiative on audit quality, it is essential to look at this issue from both the clients’ and auditors’ perspectives. When considering whether to realign with their auditors, corporate executives probably will consider these alignments as opportunities to seek out an accounting firm that has more suitable expertise than their current auditors to address their needs. While pondering their decisions, corporate executives may also consider the market reactions resulting from the auditor-client realignments. For instance, Aldhizer et al. (2009) document that the market will reward an upward switch of auditors. On the other hand, market participants may penalize companies when they make downward appointments to new auditors (Chan et al., 2006). Considering these factors and referring to the empirical findings in the prior literature, one would assume that auditor-client realignments could create possible rewards or lead to economic consequences to audit clients, which in turn may affect market participants’ perceptions over audit quality. From the accounting firms’ perspectives, an auditor-client realignment renders an opportunity for them to recruit new clients in order to broaden/improve their client portfolios. Since the government initiative is intended to strengthen professional services domestically, accounting firms not only can be more selective in terms of audit clients, but also can pursue higher audit quality at the same time. Consistent with Landsman et al. (2009) and Cassell et al. (2012), concerns over audit quality could be one of the primary drivers that motivates accounting firms to realign with their clients. Based on the arguments above, this study develops the third research question.