Special representative actions, the insurance value of audits, and investor protection: an empirical study based on the ruling against Kangmei Pharmaceutical Co. Ltd
ABSTRACTThe ruling against the Kangmei Pharmaceutical Co., Ltd’s financial fraud was the first special representative action under China’s new Securities Law, serving as a milestone in investor protection in China. Exploiting the natural experiment provided by the ruling, we empirically test the ins...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Taylor & Francis Group
2023-07-01
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| Series: | China Journal of Accounting Studies |
| Subjects: | |
| Online Access: | https://www.tandfonline.com/doi/10.1080/21697213.2023.2239674 |
| _version_ | 1797372571589541888 |
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| author | Daoguang Yang Hongling Han Yidan Mao Siyi Liu |
| author_facet | Daoguang Yang Hongling Han Yidan Mao Siyi Liu |
| author_sort | Daoguang Yang |
| collection | DOAJ |
| description | ABSTRACTThe ruling against the Kangmei Pharmaceutical Co., Ltd’s financial fraud was the first special representative action under China’s new Securities Law, serving as a milestone in investor protection in China. Exploiting the natural experiment provided by the ruling, we empirically test the insurance value of audits and find a negative market reaction of the client firms audited by the accounting firms that were still being sued as of the date of Kangmei ruling (i.e., the sued accounting firms). Further, this reaction is weakened when the solvency of the sued accounting firms or the client firms is high, and is intensified when the client firms have high litigation risk. The ruling also eroded investors’ trust in the financial statements for the year 2020 that were audited by the sued accounting firms. Overall, we provide important evidence on the effect of special representative actions from the perspective of audit insurance hypothesis. |
| first_indexed | 2024-03-08T18:36:38Z |
| format | Article |
| id | doaj.art-32bd85b0c51847cd84e8a06efaf9083b |
| institution | Directory Open Access Journal |
| issn | 2169-7213 2169-7221 |
| language | English |
| last_indexed | 2024-03-08T18:36:38Z |
| publishDate | 2023-07-01 |
| publisher | Taylor & Francis Group |
| record_format | Article |
| series | China Journal of Accounting Studies |
| spelling | doaj.art-32bd85b0c51847cd84e8a06efaf9083b2023-12-29T11:10:16ZengTaylor & Francis GroupChina Journal of Accounting Studies2169-72132169-72212023-07-0111351654210.1080/21697213.2023.2239674Special representative actions, the insurance value of audits, and investor protection: an empirical study based on the ruling against Kangmei Pharmaceutical Co. LtdDaoguang Yang0Hongling Han1Yidan Mao2Siyi Liu3Business School, University of International Business and Economics, Beijing, ChinaSchool of Management, Zhejiang University, Hangzhou, ChinaSchool of Management, Zhejiang University, Hangzhou, ChinaBusiness School, University of International Business and Economics, Beijing, ChinaABSTRACTThe ruling against the Kangmei Pharmaceutical Co., Ltd’s financial fraud was the first special representative action under China’s new Securities Law, serving as a milestone in investor protection in China. Exploiting the natural experiment provided by the ruling, we empirically test the insurance value of audits and find a negative market reaction of the client firms audited by the accounting firms that were still being sued as of the date of Kangmei ruling (i.e., the sued accounting firms). Further, this reaction is weakened when the solvency of the sued accounting firms or the client firms is high, and is intensified when the client firms have high litigation risk. The ruling also eroded investors’ trust in the financial statements for the year 2020 that were audited by the sued accounting firms. Overall, we provide important evidence on the effect of special representative actions from the perspective of audit insurance hypothesis.https://www.tandfonline.com/doi/10.1080/21697213.2023.2239674Special representative actionsinvestor protectioninsurance hypothesisnew Securities Law |
| spellingShingle | Daoguang Yang Hongling Han Yidan Mao Siyi Liu Special representative actions, the insurance value of audits, and investor protection: an empirical study based on the ruling against Kangmei Pharmaceutical Co. Ltd China Journal of Accounting Studies Special representative actions investor protection insurance hypothesis new Securities Law |
| title | Special representative actions, the insurance value of audits, and investor protection: an empirical study based on the ruling against Kangmei Pharmaceutical Co. Ltd |
| title_full | Special representative actions, the insurance value of audits, and investor protection: an empirical study based on the ruling against Kangmei Pharmaceutical Co. Ltd |
| title_fullStr | Special representative actions, the insurance value of audits, and investor protection: an empirical study based on the ruling against Kangmei Pharmaceutical Co. Ltd |
| title_full_unstemmed | Special representative actions, the insurance value of audits, and investor protection: an empirical study based on the ruling against Kangmei Pharmaceutical Co. Ltd |
| title_short | Special representative actions, the insurance value of audits, and investor protection: an empirical study based on the ruling against Kangmei Pharmaceutical Co. Ltd |
| title_sort | special representative actions the insurance value of audits and investor protection an empirical study based on the ruling against kangmei pharmaceutical co ltd |
| topic | Special representative actions investor protection insurance hypothesis new Securities Law |
| url | https://www.tandfonline.com/doi/10.1080/21697213.2023.2239674 |
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