Abstract:Do companies with vertically interlocked executives select high-quality auditors to convey good news (signaling hypothesis), or select low-quality auditors to avoid possible supervision (rent seeking hypothesis)? Using the data of Chinese A-share listed companies from 2009 to 2018, this paper empirically examines how companies with vertically interlocked executives choose their auditors. The results indicate that companies with vertically interlocked executives are less likely to choose international “Big 4” and more likely to choose domestic “Big firms”. This phenomenon is more profound in samples without a pledge of the controlling shareholder's equity. Further analysis shows that international “Big 4” and domestic “Big firms” take different attitudes toward companies with vertically interlocked executives. International “Big 4” increases audit resources significantly and charges more, compared to domestic “Big firms”. On the other hand, audit quality shows no significant difference between the two types of auditors. Our results expand the research on the determinants of auditor choice and the economic consequences of vertical interlocks of executives. It also helps to understand the consideration of companies in selecting international “Big 4” and domestic “Big firms”.