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 222 Research Question 3: Do the reasons for auditor-client realignment and the government initiative to expand and strengthen accounting practices jointly improve audit quality? 3. Data Collection and Research Methodology 3.1 Data Collection There are six panels in Table 1. Panel A presents the sample selection processes. As shown in the panel, we first obtain 3,507 observations from the Taiwan Economic Journal ( TEJ ) database. These observations range from 2002 to 2014. 7 This pool of observations includes data with and without disclosing the reasons for auditor-client realignments. Those disclosing the reasons are classified into 14 categories in the TEJ database. Some observations are removed from the analyses due to the following reasons. First, we remove 1,609 observations citing accounting firm mergers as the reason for alignments. Second, we delete another 21 and 35 observations from the pool, because the changes were made due to audit fee disputes and other unspecified reasons, respectively. Another 38 observations are also excluded because they are financial firms. For the purpose of our analyses, we collect auditing and financial data required for the study from the TEJ and China Stock Market and Accounting Research ( CSMAR ) databases. Since 464 observations do not have auditing and financial data required for the analyses, we delete them from the pool of observations as well. Following these sample selection processes, in total 1,340 firm-year observations are collected to analyze the research questions raised in this study. Panel B presents the sample distribution by industry. As presented in the panel, manufacturing firms account for over 60% of total observations. As to the observations in 7 Some argue that there were many institutional changes from 2002 to 2014 in addition to the government initiative to expand and strengthen China’s accounting practices and that these changes may have substantial effects on the auditing industry. For example, the Interim Provision on Encouraging Large- and Medium-Sized Audit Firms to Adopt LLP as their Organizational Structure issued by the MOF during the studied period was aimed to address issues related to the tax burden and potential litigation faced by accounting firms. However, there were only a few lawsuits filed against auditors. Therefore, litigation should not be a major confounding effect on this study. In addition, this interim provision, issued by the MOF, encourages large- and medium-sized audit firms to adopt the Limited Liability Partnership (LLP) as their organizational structures. As a pass-through organization, LLP relax the tax burden on accounting firms. Since our research questions do not relate to the issue of tax burden, this interim provision should not significantly affect the conclusions drawn in this study either.