Audit Centralization and Audit Quality: Evidence from Chinese Cities / Jian Chu, Raymond Fisman, Yongxiang Wang, Maoliang Ye.

Format:

Book

Author/Creator:

Chu, Jian.

Contributor:

Fisman, Raymond.

Wang, Yongxiang.

Ye, Maoliang.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w34776.

NBER working paper series no. w34776

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2026.

Summary:

Audit design invokes a tradeoff between a monitor's local knowledge and their independence from influence. We study this tradeoff in the context of a pilot program in six Chinese provinces in 2016, in which provincial governments were given control over budgeting and personnel decisions for city audits. Using a difference-in-differences framework we show that, compared to non-pilot provinces, centralization increases detection of suspicious expenditures by over 50%. These improvements occur also in cities with auditors appointed pre-2016, suggesting that stronger incentives and greater resources rather than auditor selection explain the improvements. Consistent with this interpretation, we find that financial (but not human) resources devoted to city audits increase with centralization. Further results show that centralization's benefits are strongest in provinces that centralized audit office financing as part of the reform - particularly in poorer cities - suggesting a role for resources in improved performance.

Notes:

January 2026.

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