5. Conclusion
Prior studies of the regulatory monitoring of auditors often focus on the effects of regulatory sanctions on the involved audit firms. We advance the literature by examining how regulatory investigations of audit partners affect their audit quality. Specifically, we hand-collect a sample of CSRC investigations of audit partners and explore changes in the involved partners’ audit quality around the investigations. We find that the involved audit partners are more likely to issue modified audit opinions and that their clients report lower levels of absolute value of discretionary accruals after CSRC investigations, which suggests that audit partners improve their audit quality after being investigated. Our findings are robust when we conduct a difference-in-differences test using non-involved audit partners in the same audit firm as the control group. Interestingly, we find no evidence that involved audit partners improve their audit quality after CSRC sanctions. Collectively, our results indicate that CSRC monitoring has a positive effect on the audit quality of the targeted audit partners, and this effect manifests around CSRC investigations rather than CSRC sanctions.
