Corporate governance and financial reporting quality in China

We provide a survey of the empirical archival literature on the effect of different facets of corporate governance on financial reporting and audit quality in China. Our survey is motivated by the burgeoning literature on the effects of some unique Chinese governance factors on the properties of accounting information. Although surveys of Chinese governance abound, we observe a lack of any comprehensive review of the governance-reporting quality literature. One of the desirable properties of good corporate governance is to improve financial reporting quality for facilitating efficient resource allocation decisions by corporate managers. However, institutional differences among countries mean that governance needs to be flexible and responsive to local demands. China offers an interesting case for evaluating the role of corporate governance because of the dominance of state-control over listed companies, the mandatory responsibility for independent boards of directors to disclose their opinions on important board decisions publicly, and a very different audit market compared to Western counterparts. The shortcomings of the surveyed research is identified along with some suggestions for future research.