Auditor Choices of U.S. Listed Chinese RM, IPO, and ADR Firms

• In Event: Breakfast and Research Forum
  In Roundtable Session: Table 3: Auditing Reverse Merger Firms

Abstract

This paper examines auditor choices of U.S. listed Chinese reverse merger (RM) firms, IPO firms, and ADR firms. Specifically, we explore the following research questions: (1) Do Chinese RM firms, IPO firms, and ADR firms select different types of auditors (Chinese or U.S. auditors, Big N or non-Big N auditors)? (2) Are RM firms that are up-listed from the OTC market to national exchanges more likely to choose RM expert auditors? (3) Do RM firms have more auditor changes around RM transactions than IPO and ADR firms around their listings? Logistic regression results show that Chinese RM firms and IPO firms are less likely to choose Chinese and Big N auditors relative to ADR firms. When we compare Chinese RM and IPO firms, we find that RM firms are more likely to choose small auditors relative to IPO firms but RM firms and IPO firms do not have significant differences in choosing Chinese auditors or non-Chinese auditors (mainly U.S. auditors). Results also show that RM firms that are up-listed to national exchanges are more likely to choose RM expert auditors whether measured based on yearly total audited assets of Chinese RM clients or yearly total audit fees from Chinese RM clients. Analyses also show that Chinese RM firms are more likely to change their auditors around and following RM transactions compared to IPO and ADR firms around and following their listings in the U.S.

Author

• Juan Mao, The University of Kansas