The 213th Finance and Accounting Academic Forum

Source: Updated:2016/10/24/

Time: June 6th 2016( Monday)10:00-11:30

Location: Room 501, Jiageng 2-501

Moderator::JinshuaiHu, Associate Professor of Accounting, Xiamen University

Topic: The Strategic Useof Multiple Auditors and Intragroup Propping: Evidence from Family BusinessGroups

Presenter:Wenming Wang, Assistant Professorof Accounting, Hong Kong Baptist University

Abstract:

The business groups create morecomplex auditor choice for their member firms than the typical Big 4 vs. non-Big4 auditor choice. The controlling families could take advantage of hiringmultiple auditors rather than a single auditor if such a choice achieves a“divide and conquer” strategy, which might weaken the effectiveness ofmonitoring imposed by auditors. This study investigates whether the appointmentof multiple auditors within family business groups leads to constrain orexacerbate member firms’ intragroup propping, which could be a manifestation ofagency conflicts between the controlling families and minority shareholders.Following Bae, Cheon, and Kang(2008), we capture the intragroup proppingpotentials via the positive association between stock returns for announcingand non-announcing member firms around earnings announcements. We find that thepositive stock returns association grows stronger around earningsreleases by member firms when their groups hire multiple auditors ( especially,non-Big 4 auditors paired with Big 4 auditors) than a single Big 4 auditor.This implies that the multiple-auditor setting within family business groups impairsauditors’ monitoring role that could curb the controlling families’ abilityto divert member firms’ resources for intragroup propping.

Personal Profile

Wenming Wang earned his PhD,master and BA degree in Accounting from Hong Kong Baptist University, Xiamen University,and China University of Petroleum respectively. He has published papers injournals such as Journal of BusinessEthics, Journal of Banking and Finance, and Financial Management.