| Finance is the core of modern economy. Financial security is directly related to the fundamental interests of the country, so its importance is obvious. As early as1999, the security of banking and financial system has been the vital interests of a country in the "National Security Strategy in New Century" report in the United States. Though financial security has received greater attention as an important contributor to safer national security as a result of the high-frequency financial crises, finance has long been recognized as a blood in the development of a country. For example, Bank of Amsterdam made a great contribution to the rise of Netherlands, and U.S. Wall Street helps United States to get the global hegemony to some extent. On the background of globalization, finance even has been a competing tool, so that financial security has become the key strategic factor affecting national security. From2008U.S. financial crisis to Occupy Wall Street, the importance of financial security has been widely discussed in the academic literature.Financial security has become an important issue since Asian financial crisis in China. No matter from the meeting spirit of the Third Plenary Session of the Sixteenth Central Committee to central idea of18th National Congress, or from "a number of opinions on the financial support accelerated development" to "Twelfth five-year plan of financial sector", they all stress to establish and improve the financial system, as well as maintain the financial operation and financial markets stable, to prevent systemic risk. Thus, regulators have already recognized the importance of financial security.According to the Marxist theory of the state, government audit is a key component of national political system served as an effective governance tool. Compared with other regulators, government audit has some special characteristics as a result of independence, objectivity and macroscopy. As a type of assurance system, government audit, characterized by a type of public accountability, provides a variety of services within their host countries to safeguard national economic security. For example, U.S. General Accountability Office (GAO) releases "High Risk Series" every two years since1990, and it makes safeguarding national economic security as its strategic objective. Especially during the U.S. financial crisis, government audit in Group20helps to promote crisis management effectively. Though little rigorous evidence exists, there is good reason to believe that government audit plays an important role in safeguarding financial security.This dissertation has focused on the effects of government audit on safeguarding financial security. It is built on accountability concepts and audit controlling concepts that discusses the functional mechanism from the perspective of theoretical analysis and empirical test, and then explores realization ways based on it. The results are significant in both theoretical and practical aspects for some parties to promote the innovation and development of audit theory, improve audit function and perfect financial regulation. This dissertation is arranged as follows.Chapter1:Introduction. This chapter outlines research background, the significance, the thought of the issues, the methodology, expected contributions, and the framework, as well as writing arrangements. This chapter is overall planning.Chapter2:Literature review. It discusses the relevant literature home and abroad from three aspects that are financial security, the mechanism to government audit upon safeguarding financial security and the realization ways to government audit upon safeguarding financial security. This chapter identifies the opportunities of research based on the literature reviews, being prerequisite for the research.Chapter3:Theoretical framework of government audit safeguarding financial security. First, define financial security connotation based on the analysis of the relationship among financial risk, financial crisis, financial stability and financial security. Then build the theoretical framework including fundamental basis, functional orientation and action path. This chapter is the theoretical analysis part in the functional mechanism of safeguarding financial security by government audit, so it is the basis of this dissertation.Chapter4:Government audit function and macro-financial security. It is a chapter of empirical research of government audit function and macro-financial security index. It derives measures for macro-financial security index (FSI) using a composite measure comprising thirty-three individual components from three aspects which are internal economic imbalances, external economic imbalances and international financial conditions by method of principal component analysis (PCA). Government audit function is measured using two separate proxies:(1) the number of the audited institutions and (2) the amount of problems identified by government audit. This chapter investigates the relation between the audited number and macro-financial security index, and the relation between the amount of problems and macro-financial security index over the period of1984-2009through VAR model.Chapter5:Government audit function and banking security. It is a chapter of empirical research of government audit function and financial institutions’ soundness, and examining whether a high-quality government audit function is associated with higher levels of financial institutions’ soundness in the banking industry. For the sample of eight stated-owned A shares listed banks, this chapter employs financial soundness indicators (FSIs) building up on IMF(2009) to measure the soundness of financial institutions, and a dichotomous variable indicating whether the institution is audited or not as the proxy of government audit function. This chapter builds on systemically important institution as determined by the cross-sectional analysis of systemic risk that examines the role of government audit in financial institutions’ soundness by providing new evidence about the ability of the government audit function to safeguard banking security.Chapter6:Realization ways of government audit safeguarding financial security. This chapter explores how to realize the function of government audit to safeguard financial security from the innovation of audit objectives, along with the innovations of audit function, audit method, and audit report based on the theoretical analysis and empirical test.Chapter7:It is a concluding section. Main findings are summarized again. The policy implication of the findings to government audit, to financial regulators, to financial institutions is then carefully discussed. Expected direction for further study comes with the discussion of the limitation of this dissertation.Main findings in this dissertation are as follows.(1)The functional mechanism of safeguarding financial security by government audit First, systemic risk is the key point for government audit safeguarding financial security.Financial security connotation determines that the research of financial security should focus on the domestic financial system risk caused by external shocks. The most basic elements of financial security is financial risk, which can lead to systemic risk and consequently to the financial crisis through its contagion. Systemic risk can spread across financial institutions, threatening the financial system as a whole. Therefore, assessing the level of systemic risk can serve as an effective tool for safeguarding financial security.Safeguarding financial security is an important element of public accountability. Government audit is a special economic controlling mechanism to ensure public accountability performed comprehensively and effectively in essence, so its function is to guarantee and promote public accountability performed comprehensively and effectively through controlling economic activities. Thus, safeguarding financial security is the inevitable result of expanding public accountability connotation, the basic requirement of the statutory duties of audit organizations, and the international trend of the development of audit function, the practical requirement to achieve global governance as well. In sum, the main point of safeguarding financial security by government audit is systemic risk.Second, at the macro level, government audit function to safeguard financial security addresses promoting macroeconomic balance.Macroeconomic balance is the content of financial security at the macro level, and the fundamental conditions of the stable of financial system. To safeguard financial security, government audit plays the role in promoting macroeconomic balance through reviewing the design of basic regulations, evaluating the implementation of macroeconomic policy, investigating the exercise of economic power, and auditing the performance of financial regulation and so on.New evidence is found that the number of audited institutions is negatively associated with FSI, and the amount of problems identified is associated with higher FSI. These results suggest that government audit target and range can be affected by financial security as a macro-environment factor, but the government audit function can improve the level of financial security. On balance it is concluded that the results provide evidence consistent with the notion that government audit plays a role in safeguarding financial security.Third, at the micro level, government audit function to safeguard financial security addresses promoting financial institutions soundnessFinancial institutions are the smallest active units in the financial system, and the soundness of financial institutions is the basis of the stable of financial system. Government audit can disclose the violations of law issues, and the deficiencies of systems in the operation and management of the financial institutions in order to help financial institutions to better asset quality, improve earning and profit, perfect internal control and corporate governance and so on, promoting the soundness of financial institutions.It is found a significant positive relation between government audit function and FSIs. This suggests that government audit can safeguard banking security by promoting the soundness of systemically important banks to affect systemic risk. Further analysis explores the effects of the individual components of FSIs. The ratio of nonperforming loans is inversely related to government audit function, suggesting that higher government audit function is associated with higher asset quality. ROA is positively associated with government audit function. No evidence is found that capital adequacy ratios, leverage, loans to deposits are associated with government audit function.(2)The realization ways of government audit safeguarding financial securityFirst, safeguarding financial security is one of objectives for government audit, better guiding the audit activities. Second, it can be realized through establishing a monitoring institution and exploring early warning indicators and models to enhance audit early warning function. Third, it is necessary to update audit method and mode, implementing macro-auditing such as financial regulation performance audit, economic power audit and employing continuous auditing to assess the level of systemic risk timely. Fourth, it is encouraged to construct audit early warning reporting system to achieve the goal of safeguarding financial security.These contributions of this dissertation include:First, build a theoretical framework of government audit safeguarding financial security.To date, although some domestic literatures explore one or more aspects in functional mechanism of safeguarding financial security by government audit, there are still many problems left to solve. This dissertation builds a theoretical framework including basic justifications, functional orientation and action path based on financial security connotation that is assessing the level of systemic risk, to explain the functional mechanism of safeguarding financial security by government audit.Second, provide empirical evidence to enrich the functional mechanism of safeguarding financial security by government audit.This dissertation has examined whether and how government audit function might affect the level of financial security from the perspective of macro and micro at the first time. New evidence is found that government audit function is not only affected by financial security as a macro-environment factor, but also improves the level of financial security. Further, the function of safeguarding financial security is realized by making financial institutions’ asset quality and earnings better to affect systemic risk, building on the concept of systemically important institutions in banking industry. From a broader perspective, these results suggest that government audit function plays an important role in safeguarding financial security. This provides fresh empirical evidence to enrich the functional mechanism for government audit function to safeguard financial security.Third, propose the tentative idea about the innovation of government audit to safeguard financial security.This dissertation proposes to establish a monitoring institution and build a monitoring and early warning system to serve the innovation of audit function, to implement macro-auditing such as financial regulation performance audit, economic power audit and employ continuous auditing to serve the innovation of audit method, and construct audit early warning reporting system to serve audit report, leading to improve the level of financial security. These tentative ideas should be interesting to several parties. |
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