Abstract

In this study, we examine the association between the ownership structure of Chinese listed firms and their audit choices among the Big 4, Second-tier, and Other firms between 2007 and 2012. The market share of the Big 4 firms in China was relatively low, while that of the Second-tier firms increasing during the sample period. Although there is little evidence to indicate that the audit quality of the Second-tier firms is not comparable to that of the Big 4 firms in China, we find that large shareholders and boards of directors do not perceive the financial reporting credibility associated with the Second-tier firms to be the same as that of the Big 4 firms. We further find that the largest shareholders of Chinese listed firms prefer low-quality auditors when they have a low level of ownership but prefer high-quality auditors when they have a high level of ownership. The empirical evidence presented in this study should be of interest to regulators and academics.