Managers' Risk Preference And Audit Firm Selection

In recent years,corporate earnings management and tax avoidance have intensified,and accounting firms have frequently failed in auditing.The convening of the Nineteenth Congress accelerated the pace of reform of the auditing system,and The National People's Congress and Chinese People's Political(NPC and CPPCC)National Committee held in March 2019 once again emphasized the supervision function of audit.As the supervision of audit industry becomes stricter,more and more accounting firms refuse to audit for risk companies.Correspondingly,in order to obtain the good reputation and benefits accompanied by standard audit opinions,enterprises tend to consider many aspects in the selection of accounting firms.At present,domestic and foreign research on firm selection mainly focuses on the corporate level,and there are few literatures about how the characteristics of managers affect firm selection.Therefore,it has certain theoretical and practical significance to explore the influence of managers' risk preference on firm selection from the perspective of excessive earnings manipulation and tax radicalization.In fact,managers of listed companies,as the core force of enterprises,are likely to prefer to hire small accounting firms rather than large ones with strong independence and professional competence in order to hide earnings management or tax avoidance.However,this choice tendency is most likely to be affected by the irrational behavior of senior executives.From the unique perspective of excessive earnings manipulation and tax activism,this paper attempts to explore the internal relationship between managers' risk preference,financial compliance and firm selection.Specifically,in the case of listed companies with high degree of earnings manipulation or tax avoidance,that is,poor financial compliance,will risk-biased executives "know that there are tigers in the mountain and prefer the tiger in the mountain" when choosing firms,that is,dare to choose bigger firms? If so,do risk-averse managers prefer big audit firms with industry expertise?Centering on the above issues,this paper takes a-share listed companies in Shanghai and Shen Zhen from 2012 to 2016 as research samples,analyzes existing studies and theories,and tests the relationship between managers' risk preference and firm selection from the perspectives of earnings manipulation and aggressive tax avoidance.It is found that in the case of high degree of corporate earnings manipulation or tax avoidance,that is,the case of poor financial compliance,compared with riskaverse managers,risk-averse managers are more likely to choose the top ten accounting firms,but do not prefer big audit firms with industry expertise.Further research shows that when the degree of corporate earnings manipulation or tax avoidance is high,compared with state-owned enterprises,the impact of managers' risk preference on firm size selection is more significant in non-state-owned enterprises.Compared with the big four accounting firms,risk-oriented executives are more inclined to choose the top ten accounting firms that are not the big four for auditing.To explore the internal relationship between managers' risk preference and firm selection is helpful to enrich the literature related to managers' characteristics and companies' external audit decisions.At the same time,this paper highlights the importance of the characteristics of senior executives' risk preference in audit risk factors,reveals the unique influence of managers' risk preference on firm selection in the case of high degree of earnings manipulation or tax avoidance,which helps accounting firms to further standardize and improve audit risk assessment procedures,which is helpful for accounting firms to further standardize and improve audit risk assessment procedures.In addition,based on the further analysis of the nature of property rights and the scale of the firm,this paper has certain reference value for the government regulatory authorities to strengthen the supervision from the aspects of the nature of property rights,the scale of the firm,the risk characteristics of senior executives,etc.,so as to improve the audit quality.