Research Of "Shared Auditor" Phenomenon In The Investment And Shareholding Relationship

As an effective means to remit information asymmetry,reduce agency cost and guarantee that companies have provided true and complete information,audit plays a nonreplaceable role in regulating capital market.A lot of literature in recent years show that as well as remitting information asymmetry and reducing agency cost of enterprises,external audit can also “transmit signal”,i.e.the company can engage large accounting firm with high audit quality to transmit the information that its financial statement is of high quality to the society to attract investors.Well then it is important to use the unique authentication and supervision function of audit to guarantee the reliability of information in the capital market,which does not only play an important role in bearing upon the benefits of investors in the capital market,but also is the required point of the regulators.The audit market in China is a monopolistic competition one,each accounting firm has taken at least two firms as their clients,leading to the special phenomenon “Shared Auditor”.Shared Auditor is two public companies in a specific scene hire the same accounting firm to undertake their annual report.The existing literature on “Shared Auditor” mainly focus on Merge and Acquisition(M&A),a lot of research points out that if serval companies in a conglomerate hire the same accounting,the independence of the accounting firm will be damaged and the audit quality and equity capital will be influenced.But there are also some articles showing that if two companies in the same supply chain or M&A transactions chose the same accounting firm,the information will be shared and the quality of financial statements and investment return will be improved.And the existing article shows that the higher the information-sharing of enterprises on the same supply chain is,the better their operating performance will be,which is to say that the transmission of information can promote improvement on enterprise's performance.And we've found that enterprises would select different accounting firms by combining their specific demands with the need for obtaining information and remitting information asymmetry,and the more the information collected,the higher the audit quality the investment return will be.Furthermore,the selection of auditor can influence merger and acquisition return in a way.Thus,different from the M&A transaction completed in a short period and in which one totally controlled another,we desire to research the influencing factors and consequence of auditor sharing by the two shareholding parties in the investment and shareholding relation with less contact between the two investors.Using the listed companies in shareholding relation during 2007-2015 as samples,this article researches the joint engagement of the same accounting firm by two listed companies with investment and shareholding relation,i.e.the phenomenon of “Shared Auditor”,concretely including “the influencing factors for choosing to share auditor;whether sharing of the two parties in shareholding relation can realize the effect of "information-sharing”similar to supply chain or “low balling” similar to other research areas,the manifestation and influencing factors for the effect of “information sharing”,and whether such effect of “information-sharing” can raise investors' return on investment and shareholding.The paper researches the changes of audit quality,audit fees and investment return of two shareholding parties in order to clarify the “information-sharing” mechanism in investment and shareholding relation,so as to lead the investors in obtaining true and effective information via auditors in the network information age.The paper comes to following conclusions.The research on the influence factors for “information-sharing” effect finds that when the investors have strong controlling force on the investee;the accounting firm undertaking investors'(investee's)annual report audit service had undertaken the business of the investees(investors)within last two years before sharing auditor;the two investors are in the same province,city or industry;the accounting firm engaged by the two parties is s non Big 4,the two parties are more likely to share auditor.Besides,for the two shareholding parties having shared auditors,when the investors hold a higher proportion of shares of the held party,the team auditing the investees has undertaken the audit of investors,and the two parties are in the same industry,the two parties would further jointly engage the same signed certified accountant team to undertake their audit work in consideration of stronger controlling force of investors on investees and more convenient obtaining of information,while other factors do not significantly influence the sharing of signed certified accountant team.The research of the effect on the accounting firm,i.e.whether “information-sharing” effect or “low balling” effect is more obvious finds that when the two companies in shareholding relation jointly engage the same accounting firm,the cost of information-sharing is mainly assumed by the "shareholding parties",i.e.the audit fees of shareholding parties are dramatically increased,refusing “low-balling” effect the audit quality of the two shareholding parties is significantly improved,which shows information-sharing effect is more obvious.This is because if the two clients in the same firm establish the investment and shareholding relationship,their operation will become more complex and auditors will devote more effort into them,leading the audit quality of the two to improve.And at the same time,the accounting firm will act as an information bridge between the two to facilitate the information transformation.This is inconsistent with the generally shared viewpoint that the accounting firms would "attract customer with low price" to undertake business when the two shareholding parties share an auditor,yet verifies from this perspective that the determinants of audit input and risks in Chinese market mainly are complexity of auditors' business,confirmability and own operating risk instead of "attracting customers with low price".Further study shows that the region,industry and accounting firm's scale would all differently influence the informationsharing effect.The two shareholding parties would engage the branch of accounting firm located in the same province or city,the accounting firm located in the same industry with the investees and "non-four large accounting firms" to reduce the implicit cost incurred by auditor sharing to enhance information-sharing effect,i.e.the two shareholding parties would combine different conditions in obtaining information via auditor sharing to select the mode which has the highest cost-effectiveness for obtaining information and is more favorable for themselves,so as to maximize the information-sharing effect.The research on shareholding return finds that the investment return of the shareholding parties is somewhat raised in a long period of time after the two companies in shareholding relation jointly engage the same accounting firm.This indicates that the information-sharing effect is indeed favorable for the shareholding parties,which is in line with the conclusion of chapter 5.Besides,when the two shareholding parties are in the same province or city or engage a "non-four large accounting firms" in the same industry with the investees,the shareholding parties' investment return is more significantly improved.This indicates that informationsharing effect can indeed be maximized in these conditions,which is consistent with the conclusion of further research in chapter 5.The paper makes following contributions: For theoretical research: this papaer stands on the view of accounting firms and the information sharing effect which is not the hot point in the related areas and found that differently from conglomerate audit which will damage the independence of auditors,the two companies in the same investment and share-holding relationship will make the information sharing effect more obvious than low balling.The auditors will devote more effort into the clients if the two have invested in each other in order to collect more information to improve the financial statements quality of companies and audit quality of its own.At the same time it will act as the information bridge between them.And in different situations the two companies will choose the best way for themselves to share information,which will bring benefits to the investors.Thereby we extended the literature of information-sharing in economic life.Besides,nowadays research on information sharing mainly focus on “Common director ” and “Bi-agency”,seldomly refers to shared auditor.But our research stand on the investors and investees in the share-holding relationship to do research on “shard auditor”,which enriches the literature of “information sharing”.While for influencing factors of audit quality and investment yield,the paper finds that information-sharing between investors and investee on two ends of shareholding chain can raise the audit quality and shareholding return of shareholding parties,thereby enriching the literature on influencing factors of audit quality and investment yield.In practice innovation,the research herein demonstrates that the investors with lower shareholding ratio can share auditor with investee to obtain the favorable information of investee,thereby raising the investment return.Besides,when the two parties are in different industries,the investors can take the accounting firm which is in the same industry with the investee and has industry expertise to obtain information,which indicates that "auditor sharing" is a powerful path to transmit information when the shareholding ratio of shareholding parties is low and the information transmission channels are fewer.In addition,when the shareholding ratio is high,the investors also enhance control over held party via auditor sharing.Thus,this paper can direct the investors in obtaining information,improving yield and enhancing the control over held party.Besides,for the regulators,as the auditor can exist as the channel for information transmission between two shareholding parties,the supervision over accounting firm appear to admit of no delay.The paper's pointing out that "auditor sharing" exists as the channel for information transmission can serve as reference for supervision policies of regulators and provide a basis for the regulators to formulate policies.The paper is mainly divided into following parts:Chapter 1 is an introduction,including system background of the paper,definition of key concepts,researched problem,research clue and research techniques,research conclusions,innovation points and research frame.It points out that current age is an "information age" overflowed with much false and deceiving information in the capital market,so the investors need to depend on authentication and supervision unique to audit to obtain information,and remit the information asymmetry and guarantee trueness and integrity of information disclosed.However,Chinese audit market is a “monopolized competition” market,which is monopolized by four international firms and big domestic firms,leading to sharing of one firm among several enterprises,i.e.the “auditor sharing”.Currently,the research on auditor sharing is mainly concentrated in the supply chain relation in which the vendor and purchaser have close business contact and the merger and acquisition relation which is completed in short period and has strong controlling force exerted by the acquirer to the acquired party.While compared with supply chain relation and merger and acquisition relation,the paper herein is more focused on whether the “auditor sharing” between two shareholding parties can produce the “informationsharing” effect in the long-term shareholding relation in which the two shareholding parties have less business contact,the influencing factors of “information-sharing” effect and manifestation,and whether the “information-sharing” effect can raise the investment and shareholding return of shareholding parties.The paper uses the thinking clue of “why the enterprises choose to share auditor-whether information-sharing effect exists-whether information-sharing effect is favorable for shareholding parties” and the research techniques of Logistic regression,propensity score matching(PSM)and grouping regression,etc.to research the problem of “auditor sharing” in the shareholding relation to make contribution to existing theory and practice.Chapter 2 and 3 are the theoretical background of the paper.The theoretical bases of the paper covers agency theory,signal transmission theory,information-sharing theory and social network and structural hole theory.The literature review in chapter 3 finds that the research on information-sharing is mainly on the supply chain level,while the sharing among enterprises on the level of non-supply chain is mainly concentrated on issues of interlocking directorate and bipolar agency.The company operators would select different auditors based on own demands for the sake of obtaining information,while the more the efforts the auditor puts in audit,the more the high-quality information is collected,and the higher the audit quality will be.The improvement on audit quality would further influence the audit fees.For the investors,the more high-quality information obtained conduces to improve investment yield.Chapter 4 is about what characteristics the two enterprises in shareholding relation that choose to share auditor have,i.e.the determinants for choosing to share auditor" in shareholding relation.The Logistic regression and grouping regression are employed,finding that when the controlling force of investors on investee is stronger,the relation is closer,the distance is short,and the engaged accounting firm is small,the two parties are more prone to share auditor,while for the two shareholding parties having already shared auditor,they would further engage the same signed certified accountant team for audit when the shareholding parties hold a higher proportion of shares of the held party,the team auditing the held party has undertaken the audit of shareholding parties within last two years,and the two parties are in the same industry.Chapter 5 explores finds that when the two companies in shareholding relation jointly engage the same accounting firm,the cost of information-sharing is mainly assumed by the "shareholding parties".We find that the audit fees of shareholding parties are dramatically increased,refusing “low-balling” effect the audit quality of the two shareholding parties is significantly improved,which shows information-sharing effect is more obvious.This is because if the two clients in the same firm establish the investment and shareholding relationship,their operation will become more complex and auditors will devote more effort into them,leading the audit quality of the two to improve.And at the same time,the accounting firm will act as an information bridge between the two to facilitate the information transformation.This is inconsistent with the generally shared viewpoint that the accounting firms would "attract customer with low price" to undertake business when the two shareholding parties share an auditor,yet verifies from this perspective that the determinants of audit input and risks in Chinese market mainly are complexity of auditors' business,confirmability and own operating risk instead of "attracting customers with low price".Further study shows that the region,industry and accounting firm's scale would all differently influence the informationsharing effect.The two shareholding parties would engage the branch of accounting firm located in the same province or city,the accounting firm located in the same industry with the investees and "non-four large accounting firms" to reduce the implicit cost incurred by auditor sharing to enhance information-sharing effect,i.e.the two shareholding parties would combine different conditions in obtaining information via auditor sharing to select the mode which has the highest cost-effectiveness for obtaining information and is more favorable for themselves,so as to maximize the information-sharing effect.Chapter 6 is about whether the “information-sharing” can produce shareholding return,finding that the investment return of the shareholding parties and the CAR of investees are somewhat raised for long after the two companies in shareholding relation jointly engage the same accounting firm.Further research shows that as the shareholding parties would select the mode which is the most favorable for themselves and has the highest cost performance in different conditions,a grouped study for different conditions is made,finding that the improvement on yield of shareholding parties is in line with the improvement by “informationsharing” effect in different conditions in chapter 5.