Publication Type

Journal Article

Version

publishedVersion

Publication Date

1-2023

Abstract

This paper examines whether there is information sharing between mutual funds and their auditors about the auditors’ other listed firm clients. Using data from the Chinese market, we find that mutual funds earn higher profits from trading in firms that share the same auditors. The effects are more pronounced when firms have a more opaque information environment and when the audit partners for the fund and the partners for the listed firm share school ties. The evidence is consistent with information flowing from auditors to mutual funds, providing mutual funds with an information advantage in firms that share the same auditors. Our findings are robust to the use of audit-firm mergers and acquisitions (M&As) as exogenous shocks and several other robustness checks. We further find that auditors benefit by charging higher audit fees for mutual fund clients and by improving their audit quality for listed firm clients. Our study provides evidence of bi-directional information sharing between two important market intermediaries.

Keywords

Audit fees, Audit quality, Auditors, China, Emerging markets, Guanxi, Information sharing, Mutual funds, Trading profits

Discipline

Accounting | Corporate Finance

Research Areas

Corporate Reporting and Disclosure

Publication

Journal of Business Finance and Accounting

Volume

50

Issue

1-2

First Page

152

Last Page

197

ISSN

0306-686X

Identifier

10.1111/jbfa.12636

Publisher

Wiley

Additional URL

https://doi.org/10.1111/jbfa.12636

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