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Corporate governance, legal environment, and auditor choice in emerging markets

journal contribution
posted on 06.12.2017, 00:00 by Mahmud Hossain, C Lim, P Siang Tan
In this study, we examine the effect of firm-level governance on the firm’s choice of an external auditor. Further, we test how the relation between corporate governance and auditor choice may be affected by the strength of legal environment. The results show that firm-level governance scores are positively related to the firm’s auditor choice. This association is strengthened by country-level legal protection. Specifically, the positive association between auditor choice and the firm-level governance scores is weaker (stronger) in a low (high) legal environment. These findings are robust after controlling for determinants that were found to be significant in earlier research. Overall, our results suggest that the benefits arising from the employment of high-quality auditors are likely to be greater when legal environment is stronger because both auditors and firms are subject to more severe legal punishments for opportunistic behavior.

History

Volume

13

Issue

1

Start Page

91

End Page

126

Number of Pages

36

eISSN

1793-6705

ISSN

0219-0915

Location

Singapore

Publisher

World Scientific

Language

en-aus

Peer Reviewed

Yes

Open Access

No

External Author Affiliations

Nanyang Technological University; Singapore Management University;

Era Eligible

Yes

Journal

Review of Pacific Basin financial markets and policies.

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