| Business Groups are very common in emerging market countries.When the high market transaction costs leaded by the imperfect external system,lacking of financial intermediary institutions and insufficient information transmission mechanisms Business groups can rely on their own advantages of internal capital markets,information transmission(Williamson,1979;Gertner et al.,1994;Stein,1997),financing(Khanna and Yafeh,2007),resource allocation(Williamson,1975;Stein,1997)and tax avoidance to reduce their transaction costs.But due to the dual agency problem and the resulting phenomenon of group socialism and member companies' rent-seeking,coupled with information asymmetry and management mismatch,the operating efficiency of business groups will descrease.External audit is an important means to reduce agency problems(Fan and Wang,2005).Compared with independent audit,common auditor in a business group can reduce the cost of obtaining relevant information due to the business synergy of listed public companies within the group.Furthermore,the common auditor can obtain more group-related information from the overall level by auditing interrelated listed companies,so it can more clearly identify the purpose of fund allocation within the business group,which increase the listed companies' cost of accounting fraud in the group.Secondly,the common auditor can help the group's actual controller to collect more information about its subsidiaries.Compared with multiple audits,the information provided by the unified audit is more comparable,which directly reduces the agency costs between group's actual controller and its subsidiaries and increase the difficulty of rent-seeking by the subsidiary,that make the behavior of subsidiary change from "tunnel-oriented" and "rent-oriented" to "economic-oriented",improving its sensitivity to salary performance.Finally,the information superiority of the common auditor helps to establish uniform evaluation standards among listed companies,and analyzes the behavior of listed companies on a holistic level,which in turn can help business group's process information and evaluate their decisions.In addition,from the perspective of consulting,on the one hand,the common auditor can provide the group's actual controller more "integrated" information;strengthen its understanding of subsidiaries,which contribute to the reasonable allocation of internal funds.On the other hand,the "integrated" information helps the auditors to make more accurate judgments,which can provide the group's actual controller with opinions about resources allocation and benefits distribution.This article studies the corporate governance effects of group common auditing from the following aspects.(1)From the perspective of motivation,in order to reduce the cost of agency problem and information asymmetry,and Strengthening control over listed companies?Do business groups hire the common auditor to audit its subsidiary listed companies? And will the use of common auditor be affected by the characteristics of the business group?(2)From the perspective of supervision,can the group common auditing effectively monitor and reduce the accounting fraud of member listed companies? Whether it can reduce the agency problems between the group headquarters and subsidiaries and the "rent-seeking" motivation of member companies,and improve the "economic-oriented” of member companies rather than"tunnel-oriented" or "rent-oriented",thereby enhancing the sensitivity of salary performance of member companies?(3)From the perspective of consulting,can the group common auditing effectively integrate resources,realize resource optimization and benefit distribution among member companies,and help member companies implement effective tax planning?The study found that: The motivation of business groups to engage in common auditor is based on two reasons: reducing multi-agent cost and increasing comparability of information.In terms of reducing agency problems,Firstly,when the headquarters of business group haslow control rights and high cash flow rights,they are more inclined to hire common auditors in order to prevent possible opportunistic behavior of listed companies and theinefficient allocation of group resources.Secondly,compared with non-state-owned business groups,when the nature of the property rights is state-owned,in order to meet the unified regulatory requirements of state-owned enterprises,reduce the agency costs between the headquarters and listed companies and offset the weakness caused by lacking of internal control,the business group is more inclined to hire common auditors.In terms of increasing the comparability of information,when the accounting firm employed by the group's listed company is "non-Big Four",the limited information collection and integration capabilities of the accounting firm make the business group more inclined to use a common auditors.Besides,the greater the number of listed companies,the more demand to unify the information caliber among the companies,and the greater the proportion of hiring common auditors.The cross-sectional analysis shows that the intentions of hiring common auditors aremore significant when the external institutional environment is poor and the degrees of diversity are high.Further analysis shows that compared with the listed subsidiaries without common auditors,listed subsidiaries with common auditors have significantly improved audit quality and the audit costs have not changed significantly,which ruling out the alternative explanation that the business groups hire common auditors to purchase audit opinions.Finally,In robustness tests,this article replaces the definition of group common audit with group-level,individual-level,and common auditors of parent and subsidiary companies,uses the propensity score matching(PSM),controls the lag of dependent variables and changes dependent variables.It is found that the main conclusions of this article are still significant.In terms of economic consequences,this article demonstrates the supervision and advisory functions of the common auditors.This article finds that compared with listed subsidiaries that do not have common auditor,the group that shares auditors has significantly improved the supervision efficiency of member listed companies,and the agency problems with member companies and the degree of information asymmetry are much lower.The specific performance is that the probability of accounting fraud in listed companies is smaller,and the salary-performance sensitivity of listed company is significantly improved.The finding confirms the common auditor's governance role for listed subsidiaries in the business group and highlights the supervisor's regulatory advantages.Further research shows that the common auditor's supervisory effect is more obvious when the listed subsidiaries that located in a province with a poor institutional environment,far away from the group headquarters and hired auditors are from "non-Big Four",which shows that the more serious the lack of external governance of the company is,the greater the degree of asymmetry of information with the headquarters and the weaker the auditor's ability,the greater supervision effect of common audits.In the robustness testing section,this article use the auditor's exogenous events build a difference in difference(DID)model,replaces the definition of common auditors to the group level and the individual level,as well as the common auditors of the parent and subsidiary companies,,controls the dependent variable lag term,replace the dependent variable,replace the corss-scetion variable,and use the internal control cross-section to make the conclusions of this article more credible.After re-examination,it is found that the group's common auditors' positive effect of accounting fraud and the sensitivity between salary and performance is still significant.In terms of the consulting function of the common auditor,this article finds that the actual tax rate of listed subsidiaries with common auditor is lower than the listed subsidiaries without common auditor,and it is more significant when listed subsidiaries are far from the headquartershired "non-Big Four" auditors and less diversified,which indicates that the consulting role of the group's common audit is greater when the degree of information asymmetry is high,the auditor's ability is weak and internal tax avoidance channels are less.Further research found that compared to other tax avoidance methods,the actual tax rate reduction of listed subsidiaries caused by common auditor will not affect the company's performance,which indicates that the improving effect of tax planning of listed subsidiaries by common auditors is mainly by integrating group resources and reducing information asymmetry among enterprises.Finally,in the robustness test,this article use quasi-natural experiments of mergers and acquisitions of audit firms to build a different in difference(DID)model,replace the definition of group common auditors(group-level,individual-level and parent-subsidiary common auditor definitions),controls the dependent variable lag term and replace the dependent variable,replace the corss-scetion variable,the results show that the common auditor's role in promoting tax avoidance for listed subsidiaries is still significant.Based on the group common auditing perspective,this paper supplements the research on corporate governance aspects of business groups and the motivation and economic consequences of hiring common auditors,it also provides a reference for the development and governance of business groups in China.Specifically,the innovations of this article are as follows:From business group perspective.First,Previous studies on business groups have discussed the effectiveness of business group forms in different situations(Myers,1977;Stein,1997;Gertner et al.,1994;Scharfstein and Stein,2000;Khanna and Tice,2001;Tan et al.,2018;Huang Jun and Chen Xinyuan,2010),and the influence of internal and external governance factors on the operation of business group(Kima and Sung,2012;Chenet al.,2017;Dah et al.,2017).Few studies explore the optimization mechanism for improving group efficiency from the perspective of external supervision.From the perspective of common auditor,this article explores the supplementary role of internal governance in business groups and confirms the positive role of common auditors in integrating group information and providing decision-making related opinions.Besides,different from existing researches which separates the internal market and external supervisionand analyzes the internal market efficiency and external supervision mechanism separately(Fan and Wong,2005;Agarwal et al.,2011;Ozbas and Scharfstein,2010;Almeida et al.(2015),this article breaks the barriers between internal market and external supervision,examines the combined effect of internal governance and external audit supervision of the business group,and finds the positive impact and complementary role of external information intermediaries corresponding to the internal market efficiency thatprovide a new research direction for optimizing the internal resource allocation of business groups.Second,this article explores the monitoring role and determines of hiringcommon auditors in business groups.Based on the agency theory and information asymmetry theory,this article clarifies the determinesof business groups when adopting external governance from the direction of reducing agency problems and increasing information comparability;it provides research ideas for opening the black box of enterprise group decision-making behaviors.Third,different from previous researches that based on independent or diversified companies(Fauver et al.,2003;Khanna and Tice,2001;Billett and Mauer,2003,Dah et al.,2017),This paper directly examines whether accounting fraud,compensation performance sensitivity,and tax planning of listed companies in business groups are affected by common auditors,validates the common auditor's oversight and consulting functions,and expands research on the economic consequences of corporate groups.Finally,the conclusion of this article shows that compared with single auditor group listed companies,group listed companies that have a common auditor have significant advantages in curbing accounting fraud,improving pay performance sensitivity,and improving tax planning.It shows that common auditor can effectively assist enterprise groups to monitor and control member listed companies,which provides a reference for the development and governance of business groups in China.From the perspective of common auditors,most of the existing researches focus on audit quality(Johnstone et al.,2014;Yan Xiang et al.,2018),M&A performance(Dhaliwal et al.,2016;Ye et al.,2015;Chircop et al.,2017),transaction efficiency(Dhaliwal et al.,2016),investment efficiency(Labro et al.,2019),and tax avoidance method learning(Zeng Yi and Li Qingyuan)demonstrated the common auditor's information " Spillover effect ".Few studies involve the "governance effect" of common auditors,and there is a lack of research on common auditors in corporate group scenarios.From the perspective of commonauditors' supervision and consulting,this paper demonstrates the positive role of commonauditors in improving corporate group governance and expands the scope of common auditor's research.In addition,compared to the existing literature,the definition of common auditor selected in this paper is richer.From the audit supplier side,the common auditor not only includes research variables at the firm level,but also uses data at the individual level of the auditor.From the demand side of the audit,this article uses both the overall level of the enterprise group,the level of member listed companies,and the definition of a common auditor between headquarters and the listed company to conduct an empirical test.The results show that no matter whether the scope of the common auditor is,itpositive role in the supervision and consultation of the enterprise group will remain unchanged.Finally,from the perspective of corporate governance,most of the studies have only discussed the influencing factors of internal governance in single listed companies.Based on the “supervision” perspective of the auditor,this paper demonstrates that the common auditor's inhibitory effect on listed companies' accounting fraud and its impact on the promotion of salary performance sensitivity.This paper Extend the research on corporate governance from the level of listed companies to the level of business groups,providing new ideas for the management of corporate accounting fraud and the sensitivity of compensation and performance in the business group,Supplemented and expanded relevant research paradigms on corporate governance.What's more,based on the auditor's "consultation" perspective,this article demonstrates the positive effect of group common audits on tax planning.In most previous studies,listed companies' tax avoidance was often accompanied by an increase in management opportunistic behavior,agency problems,and information asymmetry.In order to reduce the actual tax rate,the management of listed companies will hide information and use complex tax avoidance methods to manipulate corporate profits,resulting in loss of corporate value.Based on the research scenario of the group common audit,this article expands the tax avoidance approach of the company from the perspective of information integration,and provides a positive reference for the company's tax planning. |
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