It is a distinctive institution that party organization members participate in operation and governance decisions by two-way access and cross appointment in state-owned enterprises (SOEs hereafter). Does this institutional arrangement increase SOEs' demand for high-quality auditing? Using the sample of SOEs in A-share stock market from 2006 to 2012, this paper studies how party organization governance of SOEs influences auditor choice from a perspective of signaling. Results suggest that the SOEs with "cross appointment" tend to choose bigger auditing firms, and this effect is more salient when the performance of companies is better or the incentive of political promotion is stronger, thereby confirming the signaling hypothesis. Our results enrich Chinese distinctive theory of corporate governance embedded in firm political behavior & expand current literature, and also have some certain policy implications.
The Signaling Effect of Party Organization Governance in SOEs: Analysis Based on Auditor Choice
Journal of Finance and Economics Vol. 43, Issue 03, pp. 69 - 80 (2017) DOI:10.16538/j.cnkij.fe.2017.03.006
Cite this article
Cheng Bo, Xuan Yang, Pan Fei. The Signaling Effect of Party Organization Governance in SOEs: Analysis Based on Auditor Choice[J]. Journal of Finance and Economics, 2017, 43(3): 69–80.
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