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The influence of foreign institutional investors on audit fees: evidence from Chinese listed firms

The influence of foreign institutional investors on audit fees: evidence from Chinese listed firms
The influence of foreign institutional investors on audit fees: evidence from Chinese listed firms
This study examines the influence of qualified foreign institutional investors (QFIIs) on investee companies’ audit fees. Using data from China, we find that ownership by QFII-licensed investors is positively associated with audit fees. Besides, audit fees are higher in companies with QFIIs than in those without, and the demand for more extensive audits increases with the number of QFIIs. Notably, the demand for more extensive auditing procedures is mainly attributable to QFIIs from jurisdictions with strong governance institutions or is driven by QFIIs from jurisdictions that are geographically distant from China. Our cross-sectional analysis reveals that this positive influence is more prominent when investee companies exhibit lower earnings quality or a weak sense of corporate social responsibility. Finally, our mediation analysis suggests that QFIIs can enhance firm value and that a portion of this effect is due to the increased audit effort driven by QFIIs.
Qualified foreign institutional investors, Audit fees, Institutional quality, Shareholder protection, Geographical distance, Firm value
0155-9982
Li, Zhe
a9c524ce-3030-40bb-9bf5-6ca1ebf33d89
Wang, Bo
dc1fccae-55e8-4d28-8eb9-1c539247e940
Li, Zhe
a9c524ce-3030-40bb-9bf5-6ca1ebf33d89
Wang, Bo
dc1fccae-55e8-4d28-8eb9-1c539247e940

Li, Zhe and Wang, Bo (2022) The influence of foreign institutional investors on audit fees: evidence from Chinese listed firms. Accounting Forum. (doi:10.1080/01559982.2022.2071183). (In Press)

Record type: Article

Abstract

This study examines the influence of qualified foreign institutional investors (QFIIs) on investee companies’ audit fees. Using data from China, we find that ownership by QFII-licensed investors is positively associated with audit fees. Besides, audit fees are higher in companies with QFIIs than in those without, and the demand for more extensive audits increases with the number of QFIIs. Notably, the demand for more extensive auditing procedures is mainly attributable to QFIIs from jurisdictions with strong governance institutions or is driven by QFIIs from jurisdictions that are geographically distant from China. Our cross-sectional analysis reveals that this positive influence is more prominent when investee companies exhibit lower earnings quality or a weak sense of corporate social responsibility. Finally, our mediation analysis suggests that QFIIs can enhance firm value and that a portion of this effect is due to the increased audit effort driven by QFIIs.

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QFIIs and Audit Fees _ Accepted Version - Accepted Manuscript
Restricted to Repository staff only until 26 October 2023.
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Accepted/In Press date: 26 April 2022
Keywords: Qualified foreign institutional investors, Audit fees, Institutional quality, Shareholder protection, Geographical distance, Firm value

Identifiers

Local EPrints ID: 456687
URI: http://eprints.soton.ac.uk/id/eprint/456687
ISSN: 0155-9982
PURE UUID: b4abd434-95d3-4357-ac94-4a4a84f37ca5
ORCID for Bo Wang: ORCID iD orcid.org/0000-0001-9417-2214

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Date deposited: 09 May 2022 16:35
Last modified: 17 May 2022 02:00

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Contributors

Author: Zhe Li
Author: Bo Wang ORCID iD

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