Journal of Business Ethics

, Volume 102, Issue 1, pp 135–153 | Cite as

Buy, Lie, or Die: An Investigation of Chinese ST Firms’ Voluntary Interim Audit Motive and Auditor Independence



In the Chinese stock market, special treatment (ST) firms are the firms listed as facing imminent danger of delisting, unless they return to profitability after reporting two consecutive annual losses. Some ST firms voluntarily pay substantial fees to their external auditors to conduct interim audits, which are not required by regulations. In this study, we investigate and find that ST firms that pay for voluntary interim audits report greater discretionary accrued earnings, higher non-operating earnings, and higher returns on assets in ensuing annual reports. As a result, these firms are more likely to return to profitability and reduce their delisting risk. Our results, which contribute to the current debate on auditor independence, appear to be consistent with the possibility that ST firms “buy” external auditors’ cooperation to manipulate earnings when faced with the threat of delisting.


business ethics auditor independence voluntary interim audit earnings manipulation special treatment delisting China 



Special treatment


Non-audit services


China Securities Regulatory Commission


Total accruals


Discretionary accruals


Non-discretionary accruals


Total assets




Accounts receivable


Property, plants, and equipment


Voluntary interim audit


Firm leverage


Return on assets


Type of controlling shareholders, state or non-state


Percentage of shares owned by controlling shareholder


An index of investor protection


An auditor associated with one of the ten largest accounting firms in China


Non-operating earnings


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Copyright information

© Springer Science+Business Media B.V. 2011

Authors and Affiliations

  1. 1.Antai College of Economics and ManagementShanghai Jiao Tong UniversityShanghaiChina
  2. 2.School of ManagementXiamen UniversityFujianChina
  3. 3.Guanghua School of ManagementPeking UniversityBeijingChina

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