Auditor Supply and Audit Quality: Evidence from Chinese A-Share Firms
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This study examines the relationship between auditor supply capacity and audit quality in China’s A-share market, drawing on 2,878 firm-year observations from 2021 to 2023. Audit quality is measured by discretionary accruals (DA) estimated using the Modified Jones Model, with robustness checks using absolute discretionary accruals (AbsDA). The analysis incorporates four key auditor supply variables: audit fees, Big 4 affiliation, audit firm organizational capacity (CICPA score), and auditor tenure. Results show that higher audit fees and stronger organizational capacity are significantly associated with lower discretionary accruals, indicating enhanced audit quality through greater auditor effort and institutional resources. By contrast, Big 4 status and auditor tenure do not exhibit significant effects in this context. These findings highlight the importance of supporting appropriate audit pricing mechanisms and recognizing the role of organizational capacity, while also acknowledging the limited influence of reputational and tenure-based factors in improving financial reporting quality in emerging markets.
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