The impact of capital-market liberalization on audit reporting and pricing: evidence from a quasi-experiment

J Jiang (First Author), XY Lu (Participant Author), YH Wu (Participant Author), H Zhang (Participant Author)

Research output: Contribution to journalJournal


The purpose of this study is to investigate the effects of capital market liberalization on audit reporting and pricing. The authors use the announcement of the Shanghai-Hong Kong Stock Connect program in China as a shock to capital market liberalization. The authors use the difference-in-differences method to study the difference in changes in the frequency of modified audit opinions and audit fees between the treatment group and the control group. This study finds that capital market liberalization increases reputational and litigation risks for auditors and leads to more conservative audit reports. In addition, capital market liberalization stimulates the management of eligible firms to improve the information environment, helps to reduce information asymmetry and decreases audit fees. Specifically, the authors identify the channels of active foreign institutional investors as a new governance mechanism through which capital market liberalization impacts eligible firm and auditor decisions. Overall, this study contributes to the literature by showing that capital market liberalization can bring a new governance mechanism for the management of eligible firms and auditors in a weak institutional environment. Foreign institutional shareholders may be superior to the domestic market forces and other corporate governance in the role of monitoring the management of eligible firms and auditors.
Original languageEnglish
Number of pages26
JournalManagerial Auditing Journal
Publication statusPublished - 27 Jan 2023

Corresponding author email

Project sponsor

Research Development Fund of Xi'an Jiaotong-Liverpool University

Project No.



  • Audit fees
  • Audit opinions
  • Capital market liberalization
  • G23
  • M42
  • M48
  • Shanghai-Hong Kong stock connect
  • Weak institutional regime

Indexed by

  • SSCI
  • ABDC-A


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