Spillover Effect Of Administrative Punishment Of Accounting Firms

Since the outbreak of novel coronavirus pneumonia,China’s economic growth has slowed down greatly,and enterprises are generally facing the dilemma of financing difficulties.At the same time,Chinese enterprises have obvious preference for equity financing,the cost of equity financing is not merely concerned with the financing efficiency of enterprises,but crucially important to the long-term healthy development of enterprises.The cost of equity capital is the expected rate of return of investors,which depends on the evaluation and prediction of enterprise value by external investors.Because of information asymmetry,high-quality independent audit results are an important reference for investors to make investment decisions.However,it is difficult to define audit quality intuitively.Auditor reputation has become an important standard for investors to judge audit quality in advance.Once the CSRC discloses the administrative punishment of accounting firms,accounting firms will face a huge reputation crisis.Further,the damage to the reputation of the firm is likely to make investors question its audit quality,thus "implicating" its nonfraudulent clients.Specifically,the credibility of the financial statements of the nonfraudulent clients perceived by investors decreases,which increases the investment risk,and investors may reduce their investment willingness or require a higher rate of return.At this time,if the client companies without fraud want to obtain investment,they need to pay a higher price,which means that the cost of equity capital increases.Using the accounting firms’ CSRC punishment decision from 2011 to 2020,this paper aims to test the spillover effect of administrative punishment on the cost of equity capital of unscrupulous clients.The empirical test results show that the administrative punishment of accounting firms significantly increases the cost of equity capital of non-fraudulent clients through the signal mechanism of auditor reputation damage.In addition,the shareholding and property rights of institutional investors regulate the relationship between the administrative punishment of accounting firms and the cost of equity capital of non-fraudulent clients.Institutional investors can alleviate the signal mechanism of reputation damage of accounting firms through information advantage and supervision and governance efficiency,while state-owned enterprises also weaken the signal transmission value of administrative punishment of accounting firms because they enjoy relational resources and the "invisible guarantee" of the government.Therefore,the spillover effect of administrative punishment of accounting firms on the cost of equity capital is mainly reflected in the low shareholding proportion of institutional investors and nonstate-owned non-fraudulent clients.