The Empirical Study On The Effect Of Litigation Risk Of Listed Company On Audit Fees And Audit Opinion Types

With the development of the market economic of China and the global economic integration, our China, as the member of WTO, becomes more and more important in global economic market, especially the market subject, the listed company. The competition environment becomes more and more complex and the listed companies confront variables of risk while the legal risk is the main the risk. The company’s legal risk is a kind of commercial venture which can be controlled in essence. High level control of legal risk of listed company is important to the listed company itself, to the capital marker, and also to the regulator. The main research about legal risk of listed company is conducted from macro legal system, legal environment et al aspect. However, the research from the concrete legal risk such as litigation, arbitration, offence aspect is not rich, especially with the independent auditor. This thesis is conducted based on the following reasons:(1) on theory, the thesis researches the legal risk of listed company from the concrete aspect not from the macro legal system or the legal environment. The concrete legal risk is measured with litigation, arbitration and offence;(2) on practice, there are three points. First of all, this thesis can make the management have a deeper understanding on the listed company’s concrete legal risk and the influence of it, then, take appropriate measures to manage and control the legal risk. Second of all, the thesis can remind the independent of the legal risk of the auditee under the risk oriented audit model to supply better audit service. Finally, this thesis can supply some hint to the regulator authorities to regulate the listed company behavior for a better capital market order.The thesis is the empirical study on the effect of litigation risk of listed company on audit fees and audit opinion types. The thesis is divided into six chapters which are described as follows:The first chapter is the introduction. This chapter included four part which are the research background and meaning, the research train and main context, the research method and the framework, and the expected innovation.The following part is literature review. This chapter is about three aspects. The first one is the literature review about the influencing factors of audit fee. The second one is about the influencing factors of audit opinion. The last one is about the legal risk including the introduction of legal risk of listed company and the literature review between the legal risk and audit fee and audit opinion type.The third part is the theory analysis and hypothesis. The chapter first presents four interrelated theories about the research. They are Principal-Agent Theory, Signal-Transmission Theory, Insurance-Hypothesis Theory, and the Accountability Theory. Based on the four theories and the analysis about legal risk and audit fee&audit opinion, the thesis gives two hypothesizes:1. the audit fee get more when the legal risk of listed company is more;2. the non-standard audit opinion will be showed more when the legal risk of listed company is more.The next chapter is the design of the empirical research on the effect of litigation risk of listed company on audit fees and audit opinion types. This chapter describes the variables including dependent variables, independent variables, and control variables, sample companies, and statistics software. In this thesis,2363data is collected for audit fee model,2904data is collected for audit opinion type model. The study period is2009-2010.The five chapter is the empirical analysis which is consist of descriptive statistics, relevance analysis, regression analysis and robustness analysis. The two hypothesizes are both confirmed.The final chapter is the empirical results and policy advisement. The policy advisement is based on the empirical results. The last part of the chapter is the limitation of this study. In this thesis, the author raises three suggestions:1. The listed company should pay more attention to the legal risk which influence not only the normal operation of the company but also the independent auditor including the audit fee and audit opinion type that reversely influence the listed company. The listed company have better to take appropriate measures to management the legal risks.2. The independent auditor should realize the legal risk incidents such as the litigation, arbitration, and the offences fully under the risk oriented audit model. The independent auditors should deal with the legal risk incidents carefully when they supply the audit opinion;3. The regulator authorities can acquire the listed company set legal section to deal with the legal risk incidents to regulate the listed company behavior for a better capital market order.The innovation of this thesis:1. The thesis researches the effect of listed company’s the legal risk on audit fee and audit opinion type from the concrete aspect not from the macro legal system or the legal environment which is different from before.2. The concrete legal risk in the research is measured with litigation, arbitration and offence incidents. In the statistic model, the square of the offences is to indicate the concrete legal risk.The limitation of the thesis:1. This article chooses litigation and arbitration and offence incidents to measure the legal risk of the listed company. However the incidents can not reflect the legal risk of the listed company fully.2. In this thesis, the research period is only from2009to2010for two years. The study period is somewhat short which lead the conclusion not so reliable.3. This thesis set the audit opinion types into two parts which is set0or1which is not meticulous.