A Study On The Relationship Between The Ultimate Controller And Auditor Choice

The healthy development of the capital market is an important condition forpromoting the healthy development of the securities market and achieving efficientallocation of resources in the market. Demand for high quality audit and high qualityaudit supply is an important guarantee to play the audit role. In China, the governmentpromotes requirements for high quality audit, as well as takes a series of institutionalreforms to improve the quality of practice of Certified Public Accountants. Overall,the audit market of China already has a certain ability to provide high-quality auditservices. However, due to China’s special economic system and market conditions andother reasons, China’s demand for high-quality audit is still insufficient. Researchingauditor selection problem in final control perspective, helps clarify part of the reasonfor the lack of demand for high-quality audit, provides guidance for listed companiesto select auditors, improves the efficiency of the capital market allocation ofresources, and also to provide a reference for policy makers to formulate relevantpolicies.This paper reviewed the audit requirements of the three hypotheses from atheoretical point of view:the agency cost hypothesis, the hypothesis of signaltransduction and the insurance hypothesis. And then take empirical test. All theShanghai and Shenzhen A-share listed companies from year2008to year2010areincluded for the study sample. First, and then empirical test on the relationshipbetween agency costs and auditor choice, the relationship between financing needsand auditor choice, the relationship between legal and regulatory environment andauditor choice, as well as the identity of the three audit selection differences when theultimate controller is different. The result show: First, the agency costs of SOE andnon-SOE are significantly different, agency costs affect the choice of auditors, andthis affection is affected by the identity of the ultimate controller; Second, financingneeds are positively correlated with the demand for high-quality audit, on-SOEidentity will strengthen the demand for high-quality audit; Third, the better the legaland regulatory environment, the higher the demand for high-quality auditors, and thenon-state-owned holding identity will strengthen the demand for high quality audit,and non-SOE identity will strengthen the demand for high-quality audit. In this paper,the following recommendations should be taken for the problems in the selection ofauditors in China.To further promote the reform of property rights;Further enhancestock liquidity;Reform IPO mechanism in China; Strengthen the construction of legalsystem.