The Influence Of Collective Punishment On IPO Audit Quality

On March 8th,2018,China Securities Regulatory Commission announced the revised stipulations of the implementation of administrative licensing(138 Act)which would take effect on April 23rd,2018.According to 138 Act,any administrative licensing item being investigated due to violation of laws will result in all the administrative licensing items of the involved securities trading service institution being suspended.138 Act that reflects the idea of collective punishment arouses extensive attention in public and some of them argue that it is not reasonable enough to call for an end to all the administrative licensing items without even penalty decision.Using discretionary accruals as audit quality proxy and alleviating sample selection bias via propensity score matching,this paper provides evidence of the effectiveness of 138 Act on improving IPO audit quality.Meanwhile,taking the intense competition of audit marketing and the rising bargaining power of clients into consideration,this paper further explores the influence of client importance on the effectiveness of 138 Act.The results show that:(1)collective punishment can improve IPO audit quality;(2)the positive influence of collective punishment on IPO audit quality is more obvious in small-scale CPA firms than in big-scale CPA firms;(3)client importance can enhance the positive influence of collective punishment on IPO audit quality.Based on above conclusions,this paper proposes several suggestions to both regulators and CPA firms.