A Study On The Relationship Of Institutional Investors, Board Governance And Audit Quality

The information quality in the securities market is of great importance for thebenefits of investors and the resources allocation efficiency, and the independent auditimplemented by the CPA who examine and check the information disclosed by thelisted company can contribute to the information credibility and the normal operationof the bond market. However, in recent years, with the exposure of a series offinancial fraud at home and abroad, the credibility of auditors has dramaticallydeclined and the audit quality of listed company has been enormously concerned bythe public. In China, the securities market is mainly composed by state-owned holdingcompanies, therefore, the state controlling listed companies play important role in thestability and development of the stock market. But it is a pity that the audit quality ofthe state-run listed companies is low. And the main reason of low audit quality isascribed to the insider control problems which bring out that the senior managementbecome the auditing consigners who interfere and operate the option of CPA.Therefore, it is significant to explore the true factors of the low audit quality and thesolutions, based on this starting point, the purpose of this research is to seek theinterrelation of the institutional investors, board governance and audit quality and putforward solutions to limit the insider control problems and promote audit qualitythrough the empirical research. After reviewing the past studies on the relevant filed,our dissertation concluded the contributions and limits of the existing researches.Then some relevant conceptions were defined and hypotheses were developed.Through the corporate governance theory, principal-agent theory and game theory, wefocused on the relationship of the institutional investors, board governance and auditquality and how the three influence each other.In the empirical study of this dissertation, we used the statistical analysis methodand the data was collected through the internet. And we chose the state-run listedcompanies listed on the Shanghai Stock Exchange from 2005 to 2007, 466 sampleswere obtained, and 145 samples of them were valid. During the process of dataprocessing, we mainly used descriptive analysis, correlation analysis and panel dataregression analysis to verify hypotheses in the model and analyzed our data by SPSSand Eviews.After theoretical exploration and empirical analyses, there come to someimportant conclusions as follows: 1．The institutional investors which are the top ten shareholders have positivelyparticipated in the corporate governance of the state-owned listed company, and theycan influence some variables of the board governance. Specifically, the shareholdingratio of institutional investors has no effects on current board size and ratio ofindependent directors, but it does have a significantly negative effect on latter boardsize and a significantly positive effect on latter ratio of independent directors.Additionally, the shareholding ratio of institutional investors has the prominentpositive effects on the optimization of leader structure and the board meetingfrequency in current and latter period. However, the institutional investors can noteffect the establishment of audit committee and the shareholding ratio of the board.2．The board governance can influence the audit quality of the state-run listedcompany. And this dissertation concluded that the board size, CEO duality and boardmeeting frequency have the significantly negative effects on the audit quality, inaddition, the independent directors, the establishment of audit committee and theshareholding ratio of the board have the prominent positive effects on the auditquality.3．The institutional investors do have the effects on audit quality throughchanging the board governance. It is concluded that the ratio of institutional investorshas the significantly positive effect on the audit quality in the current and latterperiod.Finally, based on the discussion of major findings, the dissertation concludedtheoretical contributions, managerial implications, and limitations of the studies andpotential avenues for future research were also presented.