The Empirical Relationship Between Debt Contracts And External Audit Demand

Creditors as an important corporate stakeholders who is qualified to ture and reliable information in order to acquaint the actual situation of their own rights and interests and who can take corresponding measures. Particularly after the conclusion of debt contracts, because of the information asymmetry between the two sides, the legitimate rights and interests of creditors will not be able to fully protected. In order to reduce information risk, creditors would have a demand for external audit.On the basis of principal-agent theory, asymmetric information theory, incomplete contract theory, stakeholder theory, we analyze the debt contract binding factors and formation mechanism of external audit demand in the thesis,in order to clarify the relationship between debt contract and the external audit demand we establish the model which is based on formation mechanism of external audit demand. On this basis, we presents the research hypothesis and establish the model of the relationship between debt contract and the external audit demand and use logistic regression analysis of empirical research, we find that: China's debt contract binding force factor did not play very good role in the request to hire high-quality corporate debt audit demand. On the contrary the existence of restrictive clauses in debt contracts add the debt default risk to enterprises. In order to reduce financial risk and the debt pressure, enterprises which have the higher the debt to asset ratio and the net tangible assets often reluctant to hire high-quality auditors in order to reduce the information disclosed and avoid high-quality information which is disclosed to its auditors with to adverse effects. We suggest that in our current context of transition economies, the legitimate rights and interests of creditors and did not receive high-quality auditors to protect the powerful. Finally, we prvide four strategies to improve relationships between debt contract and the external audit demand,such as perfecting contractual governance mechanisms, strengtheing legal protection for the interests of creditors, introducing creditors to participate in corporate governance, improving the law to strengthen the insurance function of external audit to strengthen the supervision of the audit market.