Definitions of variables
| Variable | Definition |
|---|---|
| A_CHOICE | Auditor choice, measured by selecting Big10 auditors in the main model |
| Big10 | Defined as 1 if the incumbent auditor for the year is from a top 10 accounting firm and 0 otherwise |
| ln_con_1 | Natural logarithm of the number of Confucian temples within a 100 km radius of the company’s registered address |
| ln_con_2 | Natural logarithm of the number of Confucian temples within a 200 km radius of the company’s registered address |
| ln_con_3 | The natural logarithm of the number of Confucian temples within a 300 km radius of the company’s registered address |
| SIZE | Company size, defined as the natural logarithm of total assets |
| LEV | Leverage, defined as total liabilities divided by total assets |
| ROA | Return on assets, defined as net income scaled by total assets |
| ISSUE | Defined as 1 if the company issues new shares in the current year and 0 otherwise |
| ATURN | Sales divided by total assets at the end of the year |
| CURR | Current assets divided by current liabilities at the end of the year |
| GROWTH | Growth rate, defined as the difference between operating revenue in the current and prior year divided by prior year operating revenue |
| FOREIGN | Defined as 1 if the firm also issues H-shares or B-shares and 0 otherwise |
| SOE | State ownership, defined as 1 if the company is a state-owned enterprise and 0 otherwise |
| GDP | The natural logarithm of the gross domestic product in the region where the company is located |
| RELIGION | The natural logarithm of the number of Buddhist temples in the region where the company is located |
| CG | Corporate governance index, measured as the first component score from a principal component analysis of five corporate governance indicators: institutional investor shareholding, ratio of independent directors, duality of CEO and chairperson, management shareholding, and cross-listing status |
| Conf_academy | The natural logarithm of the number of Confucian academies in the firm’s city of registration |
| Conf_chair | The average number of Confucian academies in the home provinces of the firm’s chairman and general manager |
| Violate | Whether the company selects a sanctioned auditor as its incumbent auditor for the year, defined as 1 if the incumbent auditor has been sanctioned by the China Securities Regulatory Commission and 0 otherwise |
| Chastity | Chastity, measured as the natural logarithm of 1 plus the number of chastity archways in the province where the firm is located |
| Trust | Regional social trust, which is based on province-level responses to the question “do you believe that vast majority of people in the society are trustworthy?” from the China general social survey |
| Moral | Regional moral self-discipline, which is based on province-level responses to two questions (“would you engage in infringing behavior for your self-interest at the expense of others’ benefit?” and “would you imitate others who gain self-interest from immoral behavior in the society?”) from the China general social survey |
| DS | Disclosure quality score, evaluated by Shenzhen and Shanghai Stock Exchange, ranging from 1–4, with higher score implying lower quality |
| Tunnel | Tunneling by large shareholder, measuring as other receivables divided by beginning assets |
| OPENCITY | Foreign culture shock, defined as 1 if the company is registered in a coastal city and 0 otherwise |
| AuditorChange | A dummy variable defined as 1 if the company changes its auditor in year t and 0 otherwise |
| Audit_fees | The natural logarithm of the audit fee of the company in year t |
| Big4 | Whether the company selects an international Big 4 accounting firm as its incumbent auditor for the year, defined as 1 if the incumbent auditor is from a Big 4 accounting firm and 0 otherwise |
| Big8 | Whether the company selects the Chinese local Big 8 accounting firm as its incumbent auditor for the year, defined as 1 if the incumbent auditor is from a local Big 8 accounting firm and 0 otherwise |
| IS | Whether the company selects an industry specialist as its incumbent audit firm for the year, defined as 1 if, for the incumbent auditor, its audit-clients’ combined total assets in a specific industry exceed 10% of the industry’s overall total assets and 0 otherwise |
| TobinQ | Market value scaled by book value, in which book value is calculated as (total assets – net intangible assets – net goodwill) |
| Variable | Definition |
|---|---|
| Auditor choice, measured by selecting | |
| Defined as 1 if the incumbent auditor for the year is from a top 10 accounting firm and 0 otherwise | |
| Natural logarithm of the number of Confucian temples within a 100 km radius of the company’s registered address | |
| Natural logarithm of the number of Confucian temples within a 200 km radius of the company’s registered address | |
| The natural logarithm of the number of Confucian temples within a 300 km radius of the company’s registered address | |
| Company size, defined as the natural logarithm of total assets | |
| Leverage, defined as total liabilities divided by total assets | |
| Return on assets, defined as net income scaled by total assets | |
| Defined as 1 if the company issues new shares in the current year and 0 otherwise | |
| Sales divided by total assets at the end of the year | |
| Current assets divided by current liabilities at the end of the year | |
| Growth rate, defined as the difference between operating revenue in the current and prior year divided by prior year operating revenue | |
| Defined as 1 if the firm also issues H-shares or B-shares and 0 otherwise | |
| State ownership, defined as 1 if the company is a state-owned enterprise and 0 otherwise | |
| The natural logarithm of the gross domestic product in the region where the company is located | |
| The natural logarithm of the number of Buddhist temples in the region where the company is located | |
| Corporate governance index, measured as the first component score from a principal component analysis of five corporate governance indicators: institutional investor shareholding, ratio of independent directors, duality of CEO and chairperson, management shareholding, and cross-listing status | |
| The natural logarithm of the number of Confucian academies in the firm’s city of registration | |
| The average number of Confucian academies in the home provinces of the firm’s chairman and general manager | |
| Whether the company selects a sanctioned auditor as its incumbent auditor for the year, defined as 1 if the incumbent auditor has been sanctioned by the China Securities Regulatory Commission and 0 otherwise | |
| Chastity, measured as the natural logarithm of 1 plus the number of chastity archways in the province where the firm is located | |
| Regional social trust, which is based on province-level responses to the question “do you believe that vast majority of people in the society are trustworthy?” from the China general social survey | |
| Regional moral self-discipline, which is based on province-level responses to two questions (“would you engage in infringing behavior for your self-interest at the expense of others’ benefit?” and “would you imitate others who gain self-interest from immoral behavior in the society?”) from the China general social survey | |
| Disclosure quality score, evaluated by Shenzhen and Shanghai Stock Exchange, ranging from 1–4, with higher score implying lower quality | |
| Tunneling by large shareholder, measuring as other receivables divided by beginning assets | |
| Foreign culture shock, defined as 1 if the company is registered in a coastal city and 0 otherwise | |
| A dummy variable defined as 1 if the company changes its auditor in year | |
| The natural logarithm of the audit fee of the company in year t | |
| Whether the company selects an international Big 4 accounting firm as its incumbent auditor for the year, defined as 1 if the incumbent auditor is from a Big 4 accounting firm and 0 otherwise | |
| Whether the company selects the Chinese local Big 8 accounting firm as its incumbent auditor for the year, defined as 1 if the incumbent auditor is from a local Big 8 accounting firm and 0 otherwise | |
| Whether the company selects an industry specialist as its incumbent audit firm for the year, defined as 1 if, for the incumbent auditor, its audit-clients’ combined total assets in a specific industry exceed 10% of the industry’s overall total assets and 0 otherwise | |
| Market value scaled by book value, in which book value is calculated as (total assets – net intangible assets – net goodwill) |
Source(s): Authors’ own work
Sharing content requires targeting cookies to be enabled. Please update your cookie preferences to use this feature.