The Effect of the Information Quantity Announcement on Modified Audit Opinion - Evidence from Chinese A-Shares Listed Companies

Abstract

This study examines the effect of information quantity announcement (IQA) on modified audit opinion (MAO). The more frequently the listed companies make announcements, the more issues are disseminated to investors. The auditors who are concerned with the issues may consider issuing a modification opinion. This study also examines whether institutional investors can moderate the impact of IQA on MAO. This study uses multivariate regression on 15,875 year-observations of companies listed in China from 2014 to 2019. This study finds evidence that more information is disseminated to investors, increasing the possibility that the company will receive MAO. The results may indicate that the auditors become more skeptical toward the issues and favor issuing modification opinions consistent with the investors’ understanding. The results also show that institutional investors moderate the relationship between IQA and MAO. The findings suggest that the more announcements the company has, the higher the probability of the company being issued with a modified audit opinion. More information indicates that the company may confront many issues that possibly influence the auditor’s consideration of their audit opinion. Therefore, policymakers may consider and analyze the advantages or drawbacks of the announcement while setting up the rules and regulations for listed companies in China. Meanwhile, the presence of institutional investors can neutralize the auditors’ skepticism toward the issues that were announced. This study is novel and contributes to the literature by examining the effect of IQA on MAO and the moderating role of institutional investors in the context of listed companies in China.