Hometown Ties and the Quality of Government Monitoring: Evidence from Rotation of Chinese Auditors
研究发现中国省级审计长在评估其家乡地级市政府时，少报告38%的可疑资金，且这种偏袒效应在国有企业盈余操纵中同样存在，对理解审计独立性和政府监管质量有重要启示。
Audits are a standard mechanism for reducing corruption in government investments. The quality of audits themselves, however, may be affected by relationships between auditor and target. We study whether provincial chief auditors in China show greater leniency in evaluating prefecture governments in their hometowns. In city-fixed-effect specifications—in which the role of shared background is identified from auditor turnover—we show that hometown auditors find 38 percent less in questionable monies. This hometown effect is similar throughout the auditor’s tenure and is diminished for audits ordered by the provincial Organization Department as a result of the departure of top city officials. We argue that our findings are most readily explained by leniency toward local officials rather than an endogenous response to concerns of better enforcement by hometown auditors. We complement these city-level findings with firm-level analyses of earnings manipulation by state-owned enterprises (SOE) via real activity manipulation (a standard measure from the accounting literature), which we show is higher under hometown auditors.