Optimal strategy of performance creation: Evidence from audit firms in China

This study aims to investigate the performance determinants of audit firm in the Peopleʹs Republic of China. Path analysis is applied to examine the association among auditor size, auditor quality, and financial performance of the Top 100 Audit Firms in China for 2002 - 2004 and 2007. Empirical result indicates a positive association between auditor size and auditor quality for both public and non-public company audit market firms. Auditor size and auditor quality are directly and positively related to performance in the public company audit market firms. However, only auditor quality directly relates to performance positively in the non-public company audit market firms. For both public and non-public company audit market firms, auditor quality is a mediator in the association between auditor size and performance. Specifically, auditor quality is the key factor in the creation of performance. Auditor plays an increasingly critical role in China. Empirical results obtained in this study not only contribute to the related literature but also provide useful information to practitioners for decision-making.