Ownership Property, Product Market Competition and Auditor Choice

摘要

Based on data from China’s stock markets for the period from 2004 to 2014, this study establishes hypotheses regarding the relationship between product market competition and auditor choice and we attempt to explain the factor of auditor choice from the perspective of industry level. On the one hand, competition can influence the demand of high quality auditor by reducing the agency cost. On the other hand, competition can improve the quality of the financial reports, which can substitute for the function of auditor in making sure of high quality financial reports. Thus, competition can influence the auditor choice of companies. This study finds that competition intensity has significantly positive impact on the choice of low quality auditors. Besides, when the competition becomes more intense, companies tend to switch from a high quality auditor to a low quality auditor. Further research shows that the relationship between market competition and the choice of auditor is more significant in the state-owned enterprise.