Reverse merger audit fee premium: Evidence from China

Zijian Cheng, Zhangxin (Frank) Liu, Isabel Zhe Wang, Xingju Zhao

Research output: Contribution to journalArticlepeer-review

Abstract

We examine the impact of listing via a reverse merger (RM) on audit fees, which can serve as an indicator of a firm's perceived risk. Using a manually assembled dataset of Chinese companies from 2010 to 2019, we find that RMs tend to pay higher audit fees than their counterparts who undertake an initial public offering (IPO), primarily due to the increased risk of corporate litigation and financial misstatement. Furthermore, RMs with performance commitments are subject to even higher fees, and this audit fee premium is particularly evident during the performance commitment period. Our analysis shows that the audit fee premium for RMs is lower in state-owned enterprises, firms with robust internal control, and those operating under weaker oversight.

Original languageEnglish
Article number103318
JournalInternational Review of Financial Analysis
Volume94
DOIs
Publication statusPublished - Jul 2024

Fingerprint

Dive into the research topics of 'Reverse merger audit fee premium: Evidence from China'. Together they form a unique fingerprint.

Cite this