Accounting Firm Size And Investor Perception Of Audit Quality Relationship

The relationship between auditor size and audit quality is a long-standing focus for the auditing industry and academia. Existing overseas papers always showed that audit quality is not independent of auditor size and investors are aware of this fact correctly and give more responses to the accounting income of larger auditors' clients. However, scholars in China haven't come to a conclusion about this topic yet. Using the return model of value-relevance of accounting income, we try to investigate and find the relationship between auditor size and the perception of auditor quality by the investors in China.Based on the actual statistic characters of Chinese auditors, we identify those with more than 27 average listed-company clients during the period of 2001 to 2006 as the bigger auditor in this paper. The data used includes all A-Share Listed Companies in China from 2001 to 2005. After the empirical research, we find that larger auditors can not significantly increase the value relevance of their clients. So we conclude that audit size doesn't change the perception of audit quality by the investors; That is to say, the investors don't think there is difference between the audit quality supplied by larger auditors and by smaller ones. The result is meaningful for government to formulate the industry policy and for public firms to choose auditors.