Product-market competition, internal control quality and audit opinions. Evidence from Chinese listed firms

Abstract

Based on data on listed firms in the Shanghai and Shenzhen A-share stock markets from 2007 to 2015, this study examines the relations among the quality of internal control, product-market competition and audit opinions. The empirical results reveal that (1) the better the quality of the internal control of listed firms is, the more likely a certified public accountant will be to issue a unmodified opinion; (2) the product-market competition is positively associated with unmodified opinions; (3) the product-market competition weakens the positive relation between the quality of the internal control of listed firms and the likelihood that a unmodified opinion will be issued by a certified public accountant; and (4) the significant impact of product-market competition on the relation between internal control quality and unmodified opinions exists only in non-monopoly industries.