Role of Earnings Management and Digitalization in Explaining the Relationship Between Audit Quality and Value Addition: Insights from China
DOI:
https://doi.org/10.52461/sabas.v7i1.3749Keywords:
Audit Quality, Earnings Management, ESG, Capital Constraints, Agency Theory, Stakeholder TheoryAbstract
This study examines the complex relationship of audit quality and value addition, considering the mediating roles of access to finance and ESG performance, and moderating roles of digitalization and earnings management in Chinese non-financial firms. Seemingly Unrelated Regression (SUR) system is used for unbalanced panel data to test the parallel mediation and double moderation proposed. Our findings show that the relationship between audit quality and value addition is in fact quite complex. Where ESG performance and capital constraints show a full, parallel, and negative mediating role between audit fees and value addition. Similarly, digitization positively moderates the association of audit fees and capital constraints, and earnings management negatively moderates the association between audit fees and both mediators. Given China’s unique institutional environment, characterized by state-influenced financing structures and rapid digital transformation, these findings offer valuable insights into how audit quality interacts with technology and sustainability in adding value for firms. Our findings suggest that Chinese firms need to integrate digitalization with ESG metrices, to ensure value addition. Finally, policymakers in China also need to consider the consequence of improved audit quality on capital access of firms and promote transparency in ESG reporting that may help support firms in value addition without being penalized by overly conservative investor reactions.
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