School of Business
Anzhong Building 820
Institutional Affiliation: Nanjing University
NBER Working Papers and Publications
|April 2020||Hometown Ties and the Quality of Government Monitoring: Evidence from Rotation of Chinese Auditors|
with , , : w27032
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 Organizations 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 rathe...