Voluntary resignation of independent directors and auditor responses: Empirical evidence from Chinese A-share listed firms
We examine auditor responses to the voluntary resignation of independent directors. We show that auditors respond by increasing audit fees or rescinding engagement with their clients, but not by increasing their audit effort. Mechanism tests reveal that independent directors’ voluntary resignation leads to increased regulatory sanctions and negative media coverage, these relationships are more pronounced after the New Securities Law. Auditor response strategies follow an order of priority: at an acceptable level of perceived risk, auditors increase audit fees; when perceived risk exceeds this level, auditors will discontinue the client relationship. Auditors associate greater risk with firms that have (vs. have not) experienced consecutive voluntary resignations by independent directors. Mandatory resignation has no such effect.
Authors
- Fei Guo (ORCID: https://orcid.org/0000-0001-9371-0463)
- Yuhong Li (ORCID: https://orcid.org/0000-0002-3544-4475)
- Dongling Li (ORCID: https://orcid.org/0009-0000-8306-4605)
Institutions
- Zhongnan University of Economics and Law (CN)
- Tianjin University (CN)
Publication Details
- Journal
- China Journal of Accounting Research
- Published
- 2024-08-01
- DOI
- https://doi.org/10.1016/j.cjar.2024.100386
- Primary Topic
- Auditing, Earnings Management, Governance
- Type
- article
- Field-Weighted Citation Impact
- 0.00
Funders
- National Office for Philosophy and Social Sciences
- Major Program of National Fund of Philosophy and Social Science of China