The Research On Minor Shareholder’ Rights Audit Protection In Listed Companies

The protection of minor shareholders’ rights is not only the core issue ofinterests fairness in capital markets and becomes the focus of securities supervisionand regulation in various countries, but also a research focus in economics. Atpresent, the systematic research concerning minor shareholders’ rights auditprotection in academic fields was still in blank, while minor shareholders’ appeal forinterests protection is urgent in China’s capital market."The research on minorshareholders’ rights audit protection in listed companies" complies with practical andresearch needs of minor shareholders’ rights and interests protection, reflects justiceof company system, and is of important theoretical significance and practical valuein promoting the formation of minor shareholders’ rights audit protection mechanismand enhancing independent audit quality in our country.Based on Principal-agent Theory, the article conducts research by combiningnormative research and practical analysis, analyses the mechanism of minorshareholders’ rights audit protection from two dimensions of audit demand andsupply, and puts forward research conclusions on following three aspects: theeffectiveness of minor shareholders’ rights audit protection should rely on theassignment of auditor hiring mechanism to the audit committee,"No fault liability"imputation principle and the audit compensation mechanism in special generalpartnership auditing firms, and the implementation of the social responsibility auditregulations.First of all, based on the analysis of major shareholders and minor shareholders’principal-agent conflicts caused by the separation of controlling and cash flow rights,the article finds that the self-protection of minor shareholders exists only in name,the ownership arrangement for minor shareholders’ rights and interests protection isuseless, and the legal protection of minor shareholders’ rights and interests isunbalanced, while independent audit is able to alleviate the principal-agent problembetween major shareholders and minor shareholders, to effectively constrain majorshareholders’ snatch behavior and becomes a good mechanism for minorshareholders’ rights protection. We propose that the realization path of the auditprotection mechanism hinges on minor shareholders’ high-quality audit demand andpublic accounting firms’ high-quality audit supply, and generating high-quality auditsupply and demand is the key to solve the problem in audit protection: improving auditor hiring mechanism and audit accountability system, and regulating socialresponsibility audit.Secondly, the research uses the sample data from listed companies from2008to2010, and selects audit reputation as proxy variable for audit quality to test thecorrelation between major shareholders’ snatch behavior and high-quality auditsupply&demand. The results found that with more serious principal-agent problemsbetween major shareholders and minor shareholders, the listed companies are moreunwilling to hire reputable auditing firms, and the auditor is more likely to publishstandard audit opinions. The result is a preliminary verification that with moreserious damage to minor shareholders’ rights, the supply and demand forhigh-quality audit is less. Further empirical research found that with such threemajor shareholders’ common snatch tactics as improper dividend payments policy,unfair transaction between related parties and the inefficient investment, the moresevere snatch behavior is, the fewer companies’ demand for high-quality audit. Alsohigh-quality audit supply is in negative correlation to major shareholders’ snatchbehavior seriousness except when under the tactic of unfair transaction betweenrelated parties, which is also consistent with preliminary results. The main reasonaccount for this result lies in the defects in auditor hiring mechanism and auditaccountability system, as well as the lack of social responsibility audit regulations.Finally, the research draws the conclusions according to theoretical researchand empirical test on minor shareholders’ rights audit protection respectively, and inorder to enhance minor shareholders’ motivation in demanding for high-quality audit,improve public accounting firms’ initiative to supply high-quality audit, strengthenthe protection by minor shareholders’ rights audit, we puts forward the followingmeasures for perfecting the system and suggestions on practical improvement:(1)Empowering audit committee with the ultimate entitlement to employ and dismissauditors to improve the existing auditor hiring mechanism. Therefore it is proposedto reform existing employing procedures of audit committee, outline theresponsibilities of audit committee, as well as perfecting the independent directormechanism and working mechanism of audit committee to improve its efficiency;(2)Implementing "No fault liability" imputation principle in defining audit legalresponsibility and improving legislation and judicial policies related to the "No faultliability principle";(3) Facing the defects in existing audit compensation mechanism,we propose such policy suggestions on auditing affairs to promote development ofspecial general partnership auditing firms: encouraging special general partnership auditing firms, building a comprehensive partner personal credit system andprofessional liability insurance system of CPA;(4)Building a social responsibilityaudit model which includes audit subject, audit content, audit evaluation indicators,audit procedures and methods. By using analytic hierarchy process and questionnairesurvey method, we create a series of social responsibility audit evaluation index byintegrating and refining existing related social responsibility evaluation standards toimprove the audit quality of supply and demand. The evaluation index involves4qualitative and23quantitative index like social responsibility management, whosecore is social responsibility report, social responsibility cognition, corporate strategy,corporate reputation and business partners.