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

233 NTU Management Review Vol. 30 No. 2 Aug. 2020 otherwise. LNTA is the natural logarithm of total assets. CFOTA is the amount of cash flow from operations divided by the amount of total assets. NEWFINANCING is the sum of new debt and equity divided by the amount of total assets. TIE is the amount of operating income divided by the amount of interest expenses (times interest earned). DA is the amount of total liabilities divided by the amount of total assets. RECTA is the amount of account receivables divided by the amount of total assets. INVTA is the amount of ending inventories divided by the amount of total assets. QUICK is the sum of cash, short-term investments, and account receivables divided by current liabilities (quick ratio). LIQ is the amount of current assets divided by the amount of current liabilities (current ratio). ROA is the amount of net income divided by the amount of beginning total assets (return on assets). TURNOVER is the amount of sales revenue divided by the amount of total assets. LOSS is coded 1 if a firm reports a net loss and 0 otherwise. ADJRETURN is the firm’s market-adjusted annual return. BETA is the firm’s systematic risk. STDRET is the standard deviation of residuals from the market model, estimated by daily returns during the year. EM is coded 1 if a firm reports ROA between 0 and 1% (small profits), ROA lower than the median value of other loss-making firms’ ROA (downward earnings management), or ROE between 6-7% (CSRC’s rights offering requirement), as in Chen et al. (2010). CIFIRM is the firm’s logged assets divided by the sum of the audit firm’s clients’ logged assets (client importance). CICPA is the firm’s logged assets divided by the sum of the audit partners’ clients’ logged assets (client importance). EXPFIRM is coded 1 if the audit firm has more than 10% market share measured by total audit fees and 0 otherwise. EXPCPA is coded 1 if any of two audit partners has more than 10% market share of total audit fees in the industry and 0 otherwise. SIZEFIRM is the sum of the audit firm’s clients’ logged assets. SIZECPA is the sum of the audit partners’ clients’ logged assets. LMAO is coded 1 if a firm receives a modified audit opinion in the prior year and 0 otherwise. LEGALFORMLLP is coded 1 if the audit firm is formed as a limited liability partnership and 0 otherwise. LEGALFORMLLC is coded 1 if the audit firm is formed as a limited liability corporation and 0 otherwise. TOP10 is coded 1 if the auditor is one of China’s local Top 10 audit firms, measured by the market share of total audit fees and 0 otherwise. LOCAL is coded 1 if a firm engages an audit firm that is neither an international Big-4 nor a local Top 10 audit firm and 0 otherwise. CMI is the credit market index, derived by Wang et al. (2008). GDI is the government decentralization index, derived by Wang et al. (2008). LEI is legal environment index, derived by Wang et al. (2008). ISSUEB is coded 1 if the client issues B shares and 0 otherwise. ISSUEH is coded 1 if the client issues H shares and 0 otherwise. EXCHANGE is coded 1 if the firm is listed in the Shanghai Stock Exchange and 0 otherwise. The variable labelled with “ D_ ” reflects that annual report data are calculated between years. The mean values for REASON_CLIENT , REASON_CPA , and REASON_GOV are 0.213 (21.3%), 0.200 (20.0%), and 0.095 (9.5%), respectively. Furthermore, we present the statistics for a modified audit opinion ( MAO ) as well. Since MAO is a binary variable, the study follows Huang et al. (2015) and codes it as “1” if a firm received a modified audit opinion in the previous year and “0” otherwise. The mean value of MAO is 0.106, indicating that 10.6% of our sample firm-year observations receive non-standard audit opinions from the auditors.