The Research On The Audit Committee's Governance Effectiveness Of Chinese Listed Companies

The audit committee is an important institutional mechanism in corporate governance, starting from the United States and the United Kingdom. This system plays significant role in financial governance and structure of corporate governance. Chinese government began to introduce audit committee system since 2002, in order to promote the corporate governance reform of Chinese listed corporations. With the establishment and development of audit committee system in our country, its operation and effectiveness have drawn attention extensively. In our country, listed companies, economic condition and market circumstance all have their own characters. As a result, abroad study isn't suitable to our country in fact. However, domestic research on audit committee system is just a little, and empirical research is even less. Therefore, it is necessary for us to make an analysis of this problem theoretically and practically.Based on a review of studies around the world, firstly, this paper theoretically analyses audit committee system and its effectiveness. Secondly, this paper empirically examines the effectiveness of Chinese audit committee system on financial fraud and auditor switches, according analyzing Chinese listed non-financial companies' data from 2002 to 2006.Results from Logistic regression of 130 fraud and no-fraud firms indicate that the presence of an audit committee doesn't significantly affect the likelihood of financial fraud. We also find the foundation of an audit committee does not enhance the independence of external auditors efficiently. Supplement test try to find the reason why there is a negative relation between the foundation of audit committees and the likelihood of auditor switches from 2002 to 2004. It indicates that it is the result of the policy effect namely companies with high Roa are incline to take the lead in setting audit committees in order to comply with the supervisory policy initiatively. Hereby, this text considers the function of protecting the quality of financial report and information disclosure and suggesting retaining or switching external auditors by audit committees should be implemented in future.