There are two limitations of this study that must be acknowledged. First, auditors’ independence, competence
and the quality control of the auditing process may all affect an audit institution’s performance, but due
to data availability we did not include these factors in our regression. Second, although the deterrent effect of
government auditing may arise from several aspects, such as the public exposure of irregularities and responsible
officers, lawful punishment of severe economic crimes, political demotion and other administrative punishments,
we focus only on the implementation of sanctions and penalties. Thus, our results should be
interpreted with caution. However, the limitations of this paper can also be overcome as China’s government
auditing practices are further standardized and perfected and more data becomes available. Therefore, this
paper also leaves much room for future research.