Monitor objectivity with important clients: Evidence from auditor opinions around the world

Simon Yu Kit Fung, Gaoguang ZHOU*, Xindong Kevin Zhu

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

10 Citations (Scopus)

Abstract

We examine whether monitors are likely to compromise their monitoring objectivity in the face of economically important clients in international business settings. In the context of external auditing and assurance services, we measure monitor objectivity by whether auditors are more (or less) likely to issue to their important clients modified audit opinions, that is, audit opinions provided to outside investors about the firm that demotes explicit areas of concern. Using a large cross-country sample, we document that auditors are more likely to issue modified opinions to their economically important clients relative to other clients. Furthermore, we find that this association is stronger (1) for Big N auditors, (2) for multinational audit clients, and (3) in countries with stronger legal regimes. These results suggest that monitors prioritize the protection of their reputation over lucrative economic relationships, and such information certification function is more pronounced for international auditors, multinational client firms, and in strong legal regimes.

Original languageEnglish
Pages (from-to)263-294
Number of pages32
JournalJournal of International Business Studies
Volume47
Issue number3
DOIs
Publication statusPublished - 1 Apr 2016

Scopus Subject Areas

  • Business and International Management
  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Strategy and Management
  • Management of Technology and Innovation

User-Defined Keywords

  • auditing
  • institutional theory
  • monitor objectivity
  • multinational corporations (MNCs) and enterprises (MNEs)
  • multiple regression analysis

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