Government Regulation,Ownership Structure And External Auditing Demands

External audit is regarded as an external mechanism of corporate governance in its nature. Through reducing the stakeholders'risk of using financial information in listed companies, External audit is method that can alleviate the agency conflict and finally improve the listed companies'value in the capital market. In our country, CPA profession has been re-established for more than 20 years, it has been experienced disaffiliation period, expand period, the big four firms into domestic market period, but its scale and practicing quality has improved a lot. This is relevant with our capital market' development, the company property reform and government control. Investors pay more attention to the company's financial information that needs more external auditing services. The agency costs stimulate the need for auditing services. The government made a series of regulations, such as firm system reformation, licence system, supervision and disclosure system, firm merged reformation, and promote auditing market' development. Therefore, auditing market's development is the result of the economy activity and economy systems. Compared with western mature capital markets, the company in our country is lack of the auditing demand. Therefore, it is necessary to research on the incentives of auditor choice, which is related to how to stimulate auditing demand and auditing supply, to promote the competition among the auditing suppliers, so that it can improve the corporate governance structure and auditing market's development. It is also necessary to research on government' character on the auditor choice to cultivate auditing demand and promote auditing market'development.This paper choose government control, equity structure and external audit demand as the theme. Research on two problems:Whether there are differences between different accounting firms'auditing quality? How companies to choose auditor and what is the role of governments? There are three parts to discussed and analyzed: theoretical analysis, System background and Empirical analysis. First, the paper stated the root cause of external independent auditing, Introduces three kinds of external audit demand hypothesis, then analyzed listed companies motives of auditing choice and influence of government regulation on both of auditing supply and demand. Separation between property rights and management rights is the root cause of the independent auditing, because of the auditing services' features and the defect of market mechanism, there is need for government regulation. Listed company' motive of auditing choice maybe is according to the compound of agency theory,information theory and insurance theory. Insurance theory has evolved into a political guarantee hypothesis. External audit demand became a method of reducing political costs. Second, the paper stated the general structure of auditing market and the influence of government regulation. Market structure is basically stable, big4 firm,domestic top 10 firms,the other general firms coexists. The low market concentration and market segmentation is auditing market's characters. In the economy transiting period, government regulation plays "helping hand" role in auditing supply, although it cannot fully offsets market defect. licence system and behavior of local government protecting local firm both hinders auditing quality. Then, reviewed and stated the existing literature. Finally, with a sample of A-share listed corporations from 2005 to 2007, the paper intend to test different types of firm's auditing quality from the perspectives of investors perception and the motive of choosing auditors. With firm brand as audit quality alternative variable, Ownership concentration,Management fees rate,dummy variable(central and local) as the text variable.This dissertation finds that:(1) By investigating quality difference from investor perception perspective, the results indicate that: investor thinks big4's auditing quality higher than non-big4,while the evidence is weak for domestic firms. But, in 2006, the evidence not shows big4's auditing quality higher. In 2007, investor thinks topl0's auditing quality higher than other domestic firms. (2) By investigating on the incentives of choosing different auditor from views equity structure and government ownership, the results indicate that: both of that have influence on auditor choice: the agency costs between management and shareholders are positively related to high quality auditing demand. There is a non-linear relationship between ownership concentration and auditing quality demand. Firms controlled by central government have incentives to choose high quality auditors, while firms have incentives to choose local small auditors.The researching significance lies in the followings:Firstly, Audit quality, audit demands are key factors to the healthy development of auditing market, If the market is lack of high quality auditing demands, the audit service provider will lose motivation to provide high quality auditing service, then a lot of low quality audit products appear on the market, which would lead to the emergence of "lemon market". on the contrary, If there are high quality auditing market demands, It must be realized by improving quality to compete for market share, the auditing market will be healthy operation. Secondly, in recent years, auditing market and the stock market has changed, the role of the government also changed in the country's economic transition period, This study can help to understand the government role in auditing market in our country and economic function of independent auditing in corporate governance mechanism. Thirdly, the financial information is an important basis for decision-making to decision makers. Since auditing specialized, investors may not easily identify audit report's authenticity and realize the external auditing requirements behind the company's real motives, This research helps investors'market pricing be more accurately. Finally, This paper also provides a certain ideas for listed companies choosing auditor, regulators guiding audit market's development. The ownership of the company arrangement and the role of government conversion will affect the behavior of company choosing auditor. The appropriate government intervention and rational internal governance would promote the breeding of high quality auditing demands.The contributions of this paper mainly lie in the followings:Firstly, the paper researches auditing demand under the dynamic background of institutional, and with the auditing supply to research the quality differentiation and the incentives of choosing different auditors. Secondly, the paper researches government's role in auditor choice, provides experience basis on proper role for government conversion. Thirdly, with the perspectives of investors perception to if there is difference between different accounting firms. From peculiar inner governance mechanism in the listed companies in China, big shareholder control and management of internal control, to investigate the shareholding structure of companies how to influence auditor choice. The limitations of this paper mainly lie in the followings:(1) The samples are tested only according to the annual data, not tested in overall annual data. Time series is very short, the universality of the conclusion is limited.(2) The domestic large accounting firms involved to this paper is ranked according to the CICPA's website every year, mainly omits part of firms that didn't get into the rankings but high quality, which may influences the integrity of samples.(3) Based on the company's equity structure this paper only chooses two important index lies in listed companies to analyze, not mentioned ownership restriction and equity liquidity.(4) This paper doesn't consider the change of accounting firm which may influences auditor choice.