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 240 As reported in Table 6, the model employed to investigate this research question is significant, with an adjusted R 2 of 0.5218 ( p -value < 0.001). This analysis finds that POST_2007 positively and significantly affects the amount of audit fees paid after the issuance of the government initiative to expand and strengthen domestic accounting firm practices in China. These findings are consistent with those reported in Kim, Liu, and Zheng (2012) and Lin and Yen (2016). Kim et al. (2012) claim that audit fees increase after mandatory IFRS adoption in European Union countries due to audit complexity. This result further confirms what has been reported in Lin and Yen (2016) using China as a research setting. In a similar vein, a regulatory change such as the government initiative examined herein would raise the amount of audit fee charged. In addition, we find that, among the three reasons for auditor-client realignment decisions, the coefficient of REASON_CLIENT is positive and significant at the 5% level (coefficient = 0.184, p -value = 0.018). This result suggests that companies deciding to realign with their auditors likely will pay higher audit fees. As to the interactive effect between auditor-client realignment reasons and the government initiative, our study shows a significant and negative interactive effect between REASON_CLIENT and POST_2007 on audit fees (coefficient = -0.163, p -value = 0.058). Since the sign of this interactive effect is negative, it suggests that CICPA’s initiative may reduce audit fees. Since POST_2007 by itself positively and significantly affects audit fees charged, it is evident that the government initiative to expand and strengthen accounting firm practices may have opened up opportunities for clients to negotiate professional fees with auditors. Because accounting firms are keen to compete for clients, the level of competition may have escalated during this period. Hence, the clients appear to have the upper hand to reduce professional fees charged when dealing with the auditors. 4.2.3 Effects on Audit Quality Research Question 3 examines whether the reasons for auditor-client realignment and the government initiative improve audit quality. To address this inquiry, we develop Model (3) by employing MAO as the dependent variable. Since MAO is a binary variable, we follow the extant literature (e.g., Huang et al., 2015) and code it as “1” if a firm receives a modified audit opinion and “0” otherwise. Since our research interest is to investigate the effect of reasons for auditor-client realignment on audit quality, we classify auditor-client realignment reasons into client-related ( REASON_CLIENT ), CPA firm-related ( REASON_