Guoping Liu

Auditor industry specialization, board governance, and earnings management

Purpose - The purpose of this study is to investigate the interaction effect of auditor industry specialization and board governance on earnings management. This study examines whether board independence is more or less effective in constraining earnings management for firms audited by industry specialists than for firms audited by non-specialists. Design/methodology/approach - The US data were collected from the RiskMetrics Directors database and the Compustat database. Regression analysis was used to test the research proposition. Findings - It was found that earnings management is more negatively associated with board independence for firms audited by industry specialists than for firms audited by non-specialists, consistent with the notion that there is a complementary relationship between auditor industry specialization and board governance. The findings suggest a positive interaction effect of auditor industry specialization and board governance on accounting quality. Originality/value - This study contributes to the literature by documenting explicit evidence that high quality boards can be more effective through hiring industry specialist auditors. This study also suggests that it may be worth investigating the interaction effect among different corporate governance mechanisms on accounting quality.

Independent Audit Committee Members’ Board Tenure and Audit Fees

An independent audit committee is an audit committee on which all members are independent directors. This study examines whether independent audit committee members’ board tenure affects audit fees. On the basis of the prior literature, we formulate an unsigned hypothesis. This is because on the one hand, long board tenure audit committee members (defined as members with board tenure of 10 or more years) have greater incentives to protect their reputational capitals by purchasing increased audit effort, which positively affects audit fees. On the other hand, audit pricing reflects audit committee quality. Long board tenure audit committee members may have less need for increased audit effort because they can effectively oversee the financial reporting process themselves, which negatively affects audit fees. We find that audit fees are negatively associated with the proportion of long board tenure directors on the independent audit committee, consistent with the notion that audit committee members’ long board tenure results in lower audit effort.

Ultimate ownership structure and corporate disclosure quality: evidence from China

Purpose - The purpose of this paper is to examine whether the type of ultimate controllers (i.e. private vs state) affects corporate disclosure quality and whether the relationship between the type of ultimate controllers and corporate disclosure quality is moderated by the separation of ownership and control. Design/methodology/approach - This study employs the data of 405 Chinese listed firms in 2005. Annual reports were reviewed to collect the data including the type of ultimate owners, cash-flow rights, and control rights; and the ratings of corporate disclosure quality were obtained from the Shenzhen Stock Exchange website. Ordered logistic regression tested the hypotheses. Findings - It was found that corporate disclosure quality is lower for firms ultimately controlled by individuals than for firms ultimately controlled by the state. Also, the negative effect of private ultimate ownership on corporate disclosure quality is stronger for firms with high deviation of cash-flow rights and control rights. Practical implications - These findings suggest that privatizing state-owned companies may increase the expropriation of minority shareholders by controlling shareholders if the privatization does not reduce the separation of cash-flow rights from control rights. Thus, it may be necessary to strengthen the governance role of minority shareholders and constrain the divergence between cash-flow rights and control rights of the ultimate owners when state-owned companies are privatized. Originality/value - This study contributes to the literature on the expropriation of minority shareholders by examining the main effect of the type of ultimate controllers and the interactive effect of ultimate ownership type and the divergence of ownership and control on corporate disclosure quality.