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State Ownership, Audit Quality and Impairment of Assets - Evidence from China
Phyllis L L Mo, Lingnan University
Pauline W Y Wong, The Hong Kong Polytechnic University
Donghui Wu, The Hong Kong Polytechnic University
ABSTRACT. Following the issuance of 1998 Accounting Regulations, Chinese regulatory authority further released another set of regulations in 2001 governing the write-down of impaired assets and requires an assessment of recoverable amount on an additional four categories of assets. This research hypothesizes that management ownership will affect the percentage of assets write-down. However, high-quality auditors should exercise their efforts in minimizing earnings management decision. The results show that different ownership structures have significant impact on the write-down decisions. Companies with largest shareholdings held by state shares and state-owned legal person shares, as compared with ordinary legal persons shares and other tradable shares, are more able to influence the decision on provision for assets write-down. In addition, this study provides evidence that companies will exercise influence on auditors within the same provincial region in respect of their impairment decision.
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