Relationship between Degree of Internationalization of Enterprises and Quality of Financial Reports in China: The Moderating Roles of Audit Committee Characteristics

Abstract

The objectives of this research were to examine the relationship between the degree of internationalization and the financial reporting quality, along with whether the audit committee could modify this relationship. The aim was to offer guidance for international companies to enhance corporate governance and regulators to improve the audit committee system of listed companies. The study employed Chinese listed manufacturing enterprises from 2014 to 2018 as the research samples, excluding those with missing data, ST and *ST status. A total of 721 enterprise samples were collected. Data were sourced from the CSMAR Database and CNINFO website. Multiple regression analysis was employed in the study, while Stata measurement software was utilized for data processing and analysis. The study results revealed that the relationship between the degree of enterprise internationalization and earnings management followed a significant U-shaped pattern. In the early stages of enterprise internationalization, as the degree of internationalization increased, earnings management decreased. Conversely, in the later stages of internationalization, greater internationalization corresponded to increased earnings management. Additionally, it was found that audit committee experts with accounting firm experience could restrain earnings management in the initial internationalization stages, yet this inhibition was not substantial in the later stages. During the initial internationalization phase, higher remuneration for auditcommittee experts correlated with more restrained earnings management behavior for enterprises. However, in the later internationalization stages, higher expert remuneration facilitated earnings management behavior. Audit committee experts with overseas work experience could inhibit earnings management behavior in the later internationalization stages, but their influence was not significant in the early internationalization stages.