Firm Organizational Legitimacy And Audit Quality:Team Perspectives

The dissertation first studies the Organizational Legitimacy motivation of those expanding local accounting firms in China.Then,from the perspective of the audit team,the dissertation using Collective Action theory to discuss the Legitimacy Trap dilemma in those expanding firm.Lastly,the dissertation studies the influence of the Legitimacy Trap on those firm’s audit quality and the audit team’s job-hopping behavior.Organizational legitimacy means perceived appropriateness of an organization to a social system in terms of rules,values,norms(Deephouse et al.,2016),which includes regulatory legitimacy,pragmatic legitimacy,moral legitimacy,culturalcognitive legitimacy.In china’s "regulatory orientation and low audit quality desire"background,when the firm size becomes "Regulatory Preference",local audit firms will expand their size to obtain the Regulatory Legitimacy.However,from the perspective of the audit team,Regulatory Legality is a Public Good.Olson(1968)explained that:When a big group lacks the compulsory control mechanism and external incentives,those individuals in this group have no incentive to pay for the Public Goods.Therefore,those expanding audit firms who rely on absorbing audit teams to grow bigger may fall into the Legitimacy Trap and damage their audit quality.The case of Ruihua in this dissertation provides evidence to support the above idea.The dissertation measures the severity of the Legitimacy Trap by constructing an "average firm group ranking index" to test its correlation with the audit quality of the audit firm.In general,the deeper a firm falls into the Legitimacy Trap,the lower the probability of the firm to issue negative audit opinions,the worse the consistency of the discretional earnings of its audit team,and the lower the audit quality of the firm.The results of the robustness also support the above findings.In further analysis,the dissertation found that the audit team cannot perceive the Legitimacy Trap,but when the audit firm is subject to regulatory penalties and faces a "Legitimacy Crisis".Those audit teams that have not been punished will have a higher chance to leave the "bad employer".The dissertation studies the audit firm’s Organizational Legitimacy motivations,possible economic consequences,and the audit team behavior.It provides a new channel to understand the "big but not strong" phenomenon by standing on the perspective of organizational legitimacy.Also,the research will help to a better understanding of the flow and allocation of human resources in the Chinese auditing market.