Audit Firm Size Effects in China’s Emerging Audit Markets

Using a panel data of both audit firms and listed firms in China from 2001 to 2003, we \nexamine the continuous relationship between audit firm size and audit quality in China’s \nrelatively competitive auditing market for publicly listed firms. We find that larger audit firms are \nmore likely to issue modified opinions than smaller firms. We also find that larger firms tend to \ncommand significantly higher audit fees. Both evidences suggest the existence of not only a \npositive but a continuous relationship between audit firm size and audit quality. This relationship \nindicates that audit firms of varying size are not homogeneous in quality even in a relatively \ncompetitive market. The continuous relationship further suggests that such a size effect does not \nrequire a particular size threshold to operate.