The Largest Shareholder Occupation Of Funds, Agency Conflicts And External Audit Oversight

Accompanying the concentration of equity structure, the basic agency problem is not the problem between the management and external shareholders any more, which has ever been demonstrated by Berle and Means, but it is the problem between the strong shareholders and minority shareholders now. Strong shareholders tend to peculate the assets of the listed companies and infringe minority shareholders'interest taking advantage of their controlling power. As a developing country in transition economics, highly concentricity equity structure is the feature in most of the listed companies, which results in that the agent conflicts is not only existed in the management and external shareholders but also strong shareholders and minority shareholders mostly.External auditing, as one of the four important elements in corporate governance, could constraint the management's behaviour and alleviate the agency conflicts between the management and external shareholders in a certain extent. Based on the analysis of the strong shareholders'behaviour, we consider that funds occupied by strong shareholders in listed companies is the product from the agency relation of strong shareholders and minority shareholders but not the agency relation of the management and external shareholders, it is the strong shareholders that infringe the minority shareholders'interest other than the management infringe the external shareholders'interest, the strong shareholders'behaviour are different from the management's and external auditing has effect on alleviating the agency conflict between the management and external shareholders,so, can the external auditing alleviate the agency conflicts betweenstrong shareholders and minority shareholders? Based on the above judgments we promote our research hypothesis. This paper chooses the Chinese A-Share listed companies of 2005 and 2006 as the samples and argues the relationship of funds occupation by strong shareholders and monitoring of external auditing from auditing opinions and choice of auditors these two aspects. And the final results show that funds occupied by strong shareholders leads to lack of capital, insolvency, losses etc. and have serious effect on the financial position as well as operating results in listed companies, which is the real reason that in some listed companies existing funds occupied by strong shareholders is easier to be issued non-standard auditing opinion and choose low auditing quality. External auditors may issue special instructions for the fund's occupation by controlling shareholders and related parties, however, it doesn't have effect on the auditing activities. Furthermore, external auditors would not issue non-standard auditing opinions, especially qualified opinion, adverse opinion or disclaimer of opinion in the above fund's occupation activities while it is hard to avoid issuing the unqualified opinion with emphasis paragraph to inform investment risk.And meanwhile, the funds-occupied behaviour also doesn't impact on the choice of auditors, which means the listed companies wouldn't invite auditors who represent the high-quality auditing to improve their corporate governance for the existing of occupying funds by strong shareholders and they don't have this purchasing motivation.