Study On Auditor Switch Behavior Of Material Assets Reorganization Companies

External audit is an important institutional design to solve the agency problem in listed companies. Auditor switch generally can raise some threats and doubts of auditor independence. The reason of auditor switch and its impact on audit quality is a basic problem of audit theory and practice research, and also is a key issue of protecting investor interests and promoting the capital market to develop healthily. The scarcity of shell resource arising from financing institution in Chinese capital market leads to the continuous emerging of material assets reorganization(MAR), which aiming for performance improvement. The reorganization factor has become an important reason for auditor switch. Taken the auditor switch behavior of MAR companies as the research subject, the thesis is to research the auditor switch behavior of MAR companies and its impact on audit quality, using the incomplete contract theory as an analysis framework, applying the analysis method of audit cost model and earnings management level definition based on the analysis of the institutional background in our country.The thesis applies the incomplete contract theory to analyze the financial reporting contract aggregation, puts forward the viewpoint that transaction cost optimization is an important decision basis, the off-balance regulatory contract triggers the audit collusion and reduces the audit quality. The thesis constructs the audit cost model based on audit cost theory, and puts forward the new auditor’s audit cost advantage determination standards of auditor switch decisions. Based on the trade-off between risks and benefits of audit collusion, the thesis constructs earnings management level definition model of single and group MAR companies, draws a conclusion that the auditor sets the higher earnings management lower limit for MAR companies.The thesis analyzes the institutional factors of auditor switch behavior of MAR companies in our country. The financing institution in Chinese capital market leads to the scarcity of shell resource, which results in the significant pressure on MAR companies to promote performance. Because of the highlighted regulation on auditor switch, the successor auditor mostly is prudent and more inclined to tolerant the hidden negative earnings management. The institution of earnings forecast commitment and default discipline increases the recognition of regulatory scale and penalty cost, which prompts the companies to produce the intense earnings management motive. Due to the fierce competition in securities audit market, two kinds of agency problems lead to the weaker demand for high audit quality, which compels the auditor to choose audit collusion and decreases the audit quality of MAR companies.The thesis empirically analyzes the auditor switch motivation of MAR companies. Using a sample of the listed companies and MAR companies for the 2007-2013 period, the thesis examines empirically the MAR behavior’s impact on the auditor switch of the listed companies, as well as the relation between the new auditor’s audit cost advantage and the auditor switch behavior of MAR companies. Findings reveal that the MAR behavior is significantly positive with the auditor switch during MAR, which suggests that the transaction cost decisions arising from MAR companies’ firm boundary adjustment influence the audit relationship. The results show that the new auditor’s audit cost advantage is significantly positive with the auditor switch of MAR companies, which suggests that the companies think of the transaction cost optimization rather than the audit opinion shopping in the auditor switch decisions of MAR companies.The thesis empirically analyzes auditor switch behavior’s impact on audit quality of MAR companies. Using a sample of the listed companies, MAR companies, and auditor switch companies for the 2007-2013 period, the thesis examines empirically the impact of MAR, auditor switch, and the combination on the audit quality. The results reveal that the MAR is significantly positive with the absolute value of earnings management, which shows that the audit quality of MAR companies decreased significantly. The further grouping regression results show that the relation is only significant in positive earnings management group, which suggests that the audit collusion make the MAR companies realize their interest pursuit of performance promotion. The audit quality of MAR companies after MAR is significantly lower than other MAR companies. The decrease in audit quality of auditor switching companies manifests significantly negative earnings management. The audit quality of MAR companies that have switched the auditors is low equally with other auditor switching companies, merely the earnings management directions are opposite, which suggests that the auditor switch aggravates the decrease of audit quality in MAR companies furtherly, the severity is same with the low quality level of auditor switching group.Based on the above research, in order to normalize the auditor switch behavior of MAR companies aiming at improving the audit quality, the policy suggestions are put forward as the following: in the short term, using the audit cost model to judge the rationality of audit relationship correctly, strengthening the regulation on audit relationship of MAR companies, improving the regulatory pertinence to auditor switch, establishing the auditor appointment mechanism by shareholder internet voting, in the long run, constructing the all-around regulatory information platform, speeding up the implement of registration system in capital market.