Research On Correlation Between Equity Agency Conflict, Board Characteristics And Auditor Selection

In principal-agent theory, external audit is an important institutional arrangement to ease the conflict in agent. High-quality audit can improve the credibility of financial information, reduce the risk of using financial information for investors, enhance the whole investors'confidence for the company, including the vast number of potential investors, and improve their expectations for the company. In the supply and demand of high-quality audits, in addition to research how to increase the supply of CPA's high quality audit services, but also an urgent need to study how to promote listed companies'needs for high-quality audit services. In mandatory audit stage, there is no difference in whether to purchase audit services, but the more significant difference lies in the level of audit quality of service chosen.China's listed companies' ownership structure are usually centralized, a proxy conflict between the controlling shareholders and small shareholders is prominent, which affects listed companies'motivation to buy high-quality audit services. The effectiveness of board governance affects the behavior of big shareholders of listed companies, and also affected the companies' motivation to recruit high-quality auditors. However, there is no open question on the study of equity agency conflict, board characteristics and audit requirements. Therefore, the studies on the relationship of equity agency conflict, the board characteristics and high-quality audit requirements, as well as using of empirical data from China's listed companies to examine the listed companies'demand for high quality audit services from the two joint aspects of equity agency conflict and board governance would have important theoretical and practical significance.In this paper, auditor selection literature at home and abroad is reviewed, and based on this the research ideas and research content comes out. Then, based on defining the related concept, the relevant theory of auditor selection was discussed in detail. Then, examine the research hypothesis which were proposed based on the relevant theoretical analysis, using SSE A-share listed companies empirical data from the 2005-2008 examination. The empirical results show that the actual controller's control rights has a significant positive correlation with the possibility to choose a high-quality auditors, and cash flow rights has a significant negative correlation with the possibility to choose a high-quality auditors, numbers of Board meetings and the proportion of independent directors both have significant positive correlation with the possibility to choose a high-quality auditors, other variables of board characteristic have no significant correlation. In this paper, the whole sample also is divided into two sub-samples according whether the company is under control of the state, the two sub-samples were verified separately, and empirical results are almost in line with the foregoing conclusions. It also surprised to discover that in the sub-sample in which actual controller of the company's non-state, establishment of the Audit Committee has a significant negative correlation with the possibility to choose a high-quality auditors. That means an effective audit committee is a certain substitution of high-quality external audit. Finally, corresponding countermeasures and suggestions are proposed based on theoretical analysis and empirical results.