Research on the Relationship between Audit Quality and Corporate Earnings Management

Xihe Xu

doi:10.6918/IJOSSER.202511_8(11).0010

Authors

Xihe Xu

DOI:

https://doi.org/10.6918/IJOSSER.202511_8(11).0010

Keywords:

Audit quality, Earnings management, Audit effort, Information disclosure, Fee pressure, Partner rotation

Abstract

This paper examines the relationship between audit quality and corporate earnings management. Based on data from A-share listed companies from 2012 to 2024, we construct a composite audit quality index (AQI) and conduct empirical tests on both accrual manipulation (DA) and real-world manipulation (REM). The study finds that high audit quality significantly inhibits earnings management behavior. A one-standard-deviation increase in the AQI reduces |DA| by approximately 3.7% on average and REM by approximately 3.2%. Further mechanistic analysis reveals that audit effort and information disclosure quality are central to the influencing pathway, with high-quality audits strengthening governance outcomes by increasing audit input and improving disclosure consistency. Heterogeneity tests reveal that this inhibitory effect is significantly weakened under conditions of high fee pressure, while increased information transparency has a substitution effect. Case studies verify the robustness of our findings under policy rotation and market competition.

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