Listed Company's Audit Committee And Corporate Governance, The Relationship Between Empirical Research

In January of 2002, Ministry of Foreign Trade and Economic Cooperation and CSRC issued Listed Companies' Governance Detailed Rules which said board of listed companies may set up audit committee voluntarily according to their holders' meeting. Then audit committee system began to establish in China. The role of audit committee is to protect the quality of financial report and information disclosure, suggest retaining external CPA firm, and examine the internal control and internal auditing. Audit committee plays a role on making up supervisor's function, helping the board to audit managers' behavior, improving independent director system, promoting inner auditing. Audit committee also has very close relationship with corporate governance. As audit committee has come into our country for a few years, domestic research is just a few, and empirical study is even less. 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. This article carries out empirical research to find out which factors affect audit committee's formation and whether audit committee's performance is significance from corporate governance viewpoints.In this study, we choose 155 Chinese listed companies from Shanghai Stock Exchange Market as our research samples. When we examine the factors affecting audit committee's formation, we select board size, supervisor size, independent director size, proportion of the first big shareholder, proportion of big three shareholders, firm size, firm leverage, time of listing on stock market, and earning per share as explanatory variables. Then a logistic regression equation is established to test the association between the dependent variable of Voluntary audit committee's formation and the independent variables of corporate governance. The results indicate that supervisor size, independent director size and EPS are significantly positively related to the voluntary audit committee's formation, and board size, proportion of the first big shareholder are negatively related to the dependent variable. And then this paper divides these 155 companies into two groups according to whether they have set up audit committee or not. Then we make x~2 test and wilcoxon nonparametric test on audit opinion, patches, choice of CPA firm and return on equity, increase of operating income from 2003 to 2005. The results indicate that companies who have set up audit committee have better audit opinion, return on equity, and fewer patches. According to this research, audit committee actually plays a very positive role in improving corporate governance; the paper also provides constructive advice for the development of audit committee in China.