2026-09-19T15:43:07Zhttps://dspace.mit.edu/server/oai/requestoai:dspace.mit.edu:1721.1/989842022-01-13T07:54:52Zcom_1721.1_7582com_1721.1_7581col_1721.1_131023
Joseph Weber.
Zhang, Jinjian, S.M. Massachusetts Institute of Technology
Sloan School of Management.
Sloan School of Management
a-cc---
2015-09-29T18:56:48Z
2015-09-29T18:56:48Z
2015
2015
http://hdl.handle.net/1721.1/98984
921176854
Thesis: S.M. in Management Research, Massachusetts Institute of Technology, Sloan School of Management, 2015.
Cataloged from PDF version of thesis.
Includes bibliographical references (pages 41-46).
The Big 4 accounting firms (PriceWaterhouseCoopers, KPMG, Deloitte and Ernst Young) are dominating the audit markets in the U.S., European Union, Japan and theoretically every major capital market EXCEPT China. As of March 2015, there were around 86% of public companies listed in the New York Exchange (NYSE) as audited by the Big 4, while only 6% of the public companies listed in the Shanghai and Shenzhen Exchange as Big 4's audit clients. To understand this phenomenon, this thesis studies the problem not only from an auditor's selection perspective but the audit firms' client acceptance and continuance decision. Moreover, the regulatory environmental development was also discussed to better consolidate relevant factors that contributed to the formation of current auditing market landscapes in China. With respect to conventional auditor selection theories like agency theories by Jensen and Meckling (1976)1, this thesis argued that managers of Chinese listed companies exercised heavy influence in the auditor selection process, resulting in reverse selection problems in auditor selection. The Big 4 accounting firms, on the other hand, enjoy fabulous auditing fee premiums from auditing market segments involving overseas investors/stakeholders because of their unique reputation. However, this fact limits their incentives to expand business to less lucrative market segments. The auditing regulatory environment was also becoming unfavorable to the Big 4 Accounting firms in recent years. This thesis is constructed as below: First, there is an introduction to Big N accounting firms and their global presence. Second, the characteristics of listed companies in China's stock market and the development of accounting and auditing industry in China were elaborated. The third part is specifically addressed to the Big 4 accounting firms and their development in China over the decades since their establishment in 1992. Later we review the current literatures regarding auditor selection, client acceptance and continuance decisions in the third part, and use these frameworks to develop our answers to topic questions in the fourth part. As the conclusion, the fifth part summarizes the arguments developed in the fourth part and addresses the limitations of this thesis. The purpose of this thesis is to form an understanding concerning the question why Big 4 Accounting firms did not dominant China's stock market as they had done in most of the developed markets. Based on these findings, Chinese policy makers may want to improve the corporate governance of the listed companies, especially in those areas related to the independence of auditing committees, if the government wish to improve their overall audit quality provided to domestic listed companies.
by Jinjian Zhang.
S.M. in Management Research
46 pages
eng
Massachusetts Institute of Technology
M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.
http://dspace.mit.edu/handle/1721.1/7582
Sloan School of Management.
Why Big 4 accounting firms did not dominant China's stock market as they did elsewhere
Thesis
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<Abstract>The Big 4 accounting firms (PriceWaterhouseCoopers, KPMG, Deloitte and Ernst Young) are dominating the audit markets in the U.S., European Union, Japan and theoretically every major capital market EXCEPT China. As of March 2015, there were around 86% of public companies listed in the New York Exchange (NYSE) as audited by the Big 4, while only 6% of the public companies listed in the Shanghai and Shenzhen Exchange as Big 4's audit clients. To understand this phenomenon, this thesis studies the problem not only from an auditor's selection perspective but the audit firms' client acceptance and continuance decision. Moreover, the regulatory environmental development was also discussed to better consolidate relevant factors that contributed to the formation of current auditing market landscapes in China. With respect to conventional auditor selection theories like agency theories by Jensen and Meckling (1976)1, this thesis argued that managers of Chinese listed companies exercised heavy influence in the auditor selection process, resulting in reverse selection problems in auditor selection. The Big 4 accounting firms, on the other hand, enjoy fabulous auditing fee premiums from auditing market segments involving overseas investors/stakeholders because of their unique reputation. However, this fact limits their incentives to expand business to less lucrative market segments. The auditing regulatory environment was also becoming unfavorable to the Big 4 Accounting firms in recent years. This thesis is constructed as below: First, there is an introduction to Big N accounting firms and their global presence. Second, the characteristics of listed companies in China's stock market and the development of accounting and auditing industry in China were elaborated. The third part is specifically addressed to the Big 4 accounting firms and their development in China over the decades since their establishment in 1992. Later we review the current literatures regarding auditor selection, client acceptance and continuance decisions in the third part, and use these frameworks to develop our answers to topic questions in the fourth part. As the conclusion, the fifth part summarizes the arguments developed in the fourth part and addresses the limitations of this thesis. The purpose of this thesis is to form an understanding concerning the question why Big 4 Accounting firms did not dominant China's stock market as they had done in most of the developed markets. Based on these findings, Chinese policy makers may want to improve the corporate governance of the listed companies, especially in those areas related to the independence of auditing committees, if the government wish to improve their overall audit quality provided to domestic listed companies.</Abstract>
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