Seek and hide: Retention of lenient auditors in the anti-corruption campaign in China

Abstract

This study investigates auditor retention behavior among state-owned enterprises (SOEs) in the context of the anti-corruption campaign launched in China in 2012. We find that SOEs with lenient auditors are less likely to switch from their incumbent auditors following the campaign, suggesting that this retention may be driven by efforts to obscure corrupt practices. Further analysis reveals this tendency is particularly pronounced in SOEs with higher entertainment and travel expenses, weaker corporate governance structures, and those engaging smaller or nonspecialized auditors. By shedding light on the interplay between SOEs’ strategic decisions and audit firm characteristics, this study provides valuable insights into the motivations underlying auditor retention. It makes a significant contribution to the expanding body of literature examining the demand for lenient auditors from a public governance perspective. Show more