Insurance claims and audit quality: evidence from trade credit insurance in Chinese listed firms

Purpose: Using unique trade credit insurance data from China, we examine whether trade insurance claims are associated with audit efforts and audit quality. Design/methodology/approach: The paper is based on a sample of Chinese firms to study insurance claims of trade credit insurance that affects abnormal audit fees. Findings: In this study, we find that firms with high insurance claims pay higher abnormal audit fees. Further, our findings indicate that firms with high insurance claims have a short audit report lag and tend to select local audit firms. Originality/value: To the best of our knowledge, this is the first study to investigate the association between trade credit insurance claims and audit efforts. In addition, we contribute to the literature on the agency cost of abnormal audit fees.