Purpose This study aims to examine whether and how the COVID-19 pandemic altered firms’ auditor switching behavior. Design/methodology/approach Drawing on crisis management theory, the authors analyze a panel data set of Chinese A-share listed manufacturing firms from 2016 to 2023 using a propensity score matching–difference-in-differences (PSM–DiD) approach. Findings Pandemic exposure significantly increased auditor switching likelihood. This effect was attenuated by slack resources but amplified when the incumbent auditor was a large audit firm, suggesting that crisis-induced switching reflects strategic adaptation shaped by internal resource endowments and external relational constraints. Practical implications Managers may leverage auditor switching as a crisis adaptation strategy, though such decisions carry audit quality risks. Regulators should monitor elevated switching rates during crises as potential indicators of governance stress. Originality/value This paper contributes to the literature by empirically investigating auditor switching as a strategic crisis response. By integrating crisis management theory with established auditor switching perspectives, it complements the “auditor-side” COVID-19 literature with a “client-side” perspective and identifies boundary conditions governing firms’ crisis responses.
Purpose This study examines the impact of statutory auditor industry specialization on corporate misconduct in China’s A-share market, with a specific focus on the mediating role of internal control quality in mitigating corporate misconduct. Design/methodology/approach Using a sample of 3,794 firms (2010-2022), we apply fixed-effects regression models and a two-stage least squares (2SLS) approach to address potential endogeneity. We quantify auditor industry specialization using market share, while the occurrence and frequency of regulatory violations are used to measure corporate misconduct. Findings The results show that auditors with industry specialization significantly reduce both the likelihood and frequency of corporate misconduct. Furthermore, internal control quality serves as a significant mediating mechanism in the relationship between auditor industry specialization and corporate misconduct. These findings highlight the role of industry specialized auditors as vital external governance agents, particularly in firms with concentrated ownership or those operating in highly competitive industries. Practical implications This study highlights policy implications for regulators and policymakers, recommending the development of auditor industry specialization through certification programs and stricter industry-specific auditing standards. Firms should engage industry-specialized auditors and invest in resources and training to improve the quality of internal controls. Originality/value This research significantly contributes to the corporate governance and auditing literature by highlighting that auditor industry specialization serves as a key external disciplinary mechanism that enhances the effectiveness of internal control. It also contributes to agency and resource-based theories by highlighting the critical role of auditor industry specialization and internal control in detecting and preventing corporate misconduct.
Purpose This study aims to examine whether audit committee (AC) attributes are associated with the extent of climate risk disclosure in mandated US annual reports, distinguishing between physical- and transition-risk discussion in 10-K Item 1A (Risk Factors). Design/methodology/approach Using S&P 500 firms, the study extracts Item 1A from 10-K filings and applies a transformer-based NLP classifier (ClimateBERT) to score firm-year physical- and transition-risk disclosure. Multiple regression models and alternative proxies are used to test the robustness of results. Findings The results show that AC independence, gender diversity and expertise are associated with higher physical- and transition-risk disclosure, consistent with stronger monitoring and closer review of climate-related narratives in 10-K filings. Longer committee tenure is linked to lower disclosure, suggesting that familiarity with management may soften scrutiny over time. The presence of an AC is also associated with higher disclosure. These results are stronger in carbon-intensive sectors and remain stable across multiple robustness tests. Research limitations/implications The study is limited to large US non-financial firms (S&P 500), which may restrict generalizability. The dependent variables are disclosure-based measures derived from textual classification of Item 1A and reflect how risks are communicated rather than underlying exposure. Practical implications Boards, AC chairs and investors can expect AC composition to shape the depth and clarity of climate-risk discussion in 10-K risk factors. Independence, gender mix and expertise are linked to fuller narratives that help users assess physical hazards and transition pressures. Regulators may also view AC features as part of the reporting system that helps explain cross-firm differences in climate-risk communication under a common US regime. Originality/value The study connects AC design to climate-risk disclosure in Form 10-K filings by using transformer-based text analytics that separate physical from transition risk within Item 1A. This provides fresh evidence on how reporting oversight relates to emerging-risk narratives and offers a scalable method for governance–disclosure research.
Purpose This study aims to investigate whether government limited partners (LPs) incur higher management fee costs than private investors when participating in venture capital (VC) funds within China's Government Venture Capital Guiding Funds (GVCGFs) system. It also examines how aligning GVCGF policy objectives with VC fund managers' investment preferences can mitigate these costs, and whether these effects vary across organizational and regional contexts, providing insights into the fiscal efficiency of public capital deployment in VC markets. Design/methodology/approach A hand-collected sample of 127 VC funds established between 2010 and 2020 that received investment from Chinese listed companies is used to examine management fee terms disclosed in limited partnership agreements. Regression analyses are conducted to estimate the effect of GVCGF participation on management fees. Instrumental variable estimation is used to address endogeneity concerns, while robustness tests and heterogeneity analyses are conducted to assess the stability and boundary conditions of the results. Findings Government LPs incur significantly higher management fees during the investment period compared to private investors. This fee gap narrows when GVCGF policy objectives align more closely with VC managers' industry, stage and regional investment preferences, highlighting the role of alignment in improving the fiscal efficiency of public capital. Heterogeneity analyses further show that the fee gap is smaller for state-owned VC firms and in regions with lower levels of marketization. Originality/value This study shifts focus from performance outcomes to cost structures in government-backed VC, offering novel empirical evidence on management fee disparities in a major public VC setting. It further shows that management fees can reflect the monitoring and coordination costs associated with policy-constrained public capital. By identifying alignment between public objectives and market expertise as a key mechanism for cost reduction, the study provides practical guidance for improving fiscal efficiency and governance effectiveness in hybrid public-private investment models.
Purpose This study aims to investigate whether and why auditors are more likely to issue modified audit opinions (MAOs) to clients receiving negative news reports. Design/methodology/approach Exploiting a legal regime change in China in 2005 that significantly increased auditor litigation risk, the authors divide the sample period into two subperiods: the low litigation risk period (2001-2004) and the high litigation risk period (2006-2009). The authors manually read and code all newspapers to identify firm-years in which clients received negative press coverage. To address endogeneity and self-selection concerns, the authors use propensity score matching, instrumental variable estimation and Heckman's two-stage model. Findings This study finds that auditors are more likely to issue MAOs to clients receiving negative news reports in the high litigation risk period. In particular, auditors' MAOs are positively related to the first negative news reports, accounting-related negative press coverage and negative news reports from state-owned media in the high litigation risk period. Further analysis shows that negative news reports increase the probability of covered firms receiving regulatory sanctions or getting sued. As a strategic defense, auditors can reduce the probability of being sued and making litigation payments by issuing MAOs in the high litigation risk period. Originality/value To the best of the authors' knowledge, this study is the first to provide comprehensive evidence in support of the strategic view and its implications (negative news reports increase the probability of covered firms getting sued and auditors can mitigate litigation risk by issuing MAOs).
