Audit quality is thought to occur primarily due to litigation pressure．We report results from a study conducted in a low litigation environment(China)where a Big 4 audit firm (Deloitte)failed to detect a fraud involving a public company(Kelon)．We find that Big 4s clients have negative abnormal returns of 1．5％at events pertaining to Kelon while non-Big 4 auditors’clients have positive abnormal returns of 0．6％．These negative market reactions are moderated by state．ownership．Clients are less likely to switch to Big 4 firms，and Big 4 firms lose market share in the IPO market．IPO clients audited by Big 4 firms have more underpricing．Our results support a reputation rationale for audit quality，and also show that Big 4 audit firms are regarded as a whole with respect to audit quality in the emerging Chinese audit market．