Research On The Influence Of Institutional Environment And CPA Firm’s Regional Competitive Advantages On Audit Quality

Recently, the highly centralization of big four CPA firm’s market share inWestern Countries has made regulators and researchers pay greate attention to therelationship between the degree of audit market competition and audit quality.Different from Western developed Countries, the competition of China’s auditmarket is extremely fierce, the audit market which is controlled by governmentmakes CPA firm look like big but not strong, most of the CPA firm’s customers areconcentrated in the local, no firm has general trans-regional competitive advantages,the so-called big N has not yet formed in China’s audit market. The regionalcharacteristic of audit market provides us with a natural condition to study theeffects of CPA firm’s regional competitive advantages on audit quality. Meanwhile,we also consider the impact of differences of institutional environment in variousregions of China on the relationship between them.Using a sample of Chinese listed firms from2007to2010, we research on therelationship among institutional environment, CPA firm’s regional competitiveadvantages and audit quality. The results are as follow: firstly, on the whole, CPAfirm’s regional competitive advantage is positively related with audit quality;secondly, in the sample of small customers, the bigger CPA firm’s regionalcompetitive advantage is, the lower customers’ unsigned and positive discretionaryaccrual are. However, CPA firm’s regional competitive advantage can not reduce thelevel of big customers’ discretionary accrual; finally, in the region where theinstitution environment is better, the more significant the correlation of CPA firm’sregional competitive advantage and audit quality. Based on the conclusions, thepaper puts forward related suggestions: first of all, CPA firms sh ould foster regionalcompetitive advantage and improve the internal governance structure; then, it isnecessary for CPA firms to improve the auditor independence; last but not the least,we propose that measure should be taken to guide the areas in poor in stitutionalenvironment to speed up the process of market development and narrow the gapbetween different areas.