Auditor Reputation And Investor Protection

China’s market is the emerging market transformation Currently. Corporate governance mechanism is in the gradual improvement but there is still a multi-agent problem. There are agency conflicts between shareholders and managers, Agency conflicts between Major shareholders and minority shareholders and agency conflicts between shareholders and creditors. Auditing is an effective mechanism for ease of agency conflicts, but the audit did play a role depends on the level of audit quality. Reputation incentive and constraint accounting firm providing high-quality audit services. Reputable independent external audit can reduce the agency costs of equity on corporate governance and investor protection, which is of great significance.We divided Equity Agency Cost into two categories according to Genesis, Equity Agency Cost of the first category is formed by the shareholders and managers agency conflicts, Equity Agency Cost of the second category is formed by the agency conflicts between the large and small shareholders. We have chosen the AICPA comprehensive evaluation every year hundreds of accounting firms in the top ten as reputable auditors. We have established the relationship between multiple regression model empirical test auditor reputation with two types of agency costs of equity. Empirical test results showed that the reputation of the external auditors and first type of Equity Agency Cost was not significant negative correlation, and the reputation of the external auditors and the cost of agency efficiency was a significant positive correlation. Reputable independent external audit can ease the shareholders and management of the agency conflicts reduce first-class agency costs of equity increase agent efficiency. And we confirmed the reputation of auditors and second type of Equity Agency Cost was a significant negative, Reputable independent external audit could restrain the self-interested behavior of large shareholders to ease the size of the shareholder agency conflicts and thus reduce the second class of equity agency costs.The empirical test results show that the reputation mechanism initial role to play in the audit market in China, a reputable independent external audit can to some extent reduce information asymmetry, mitigate agency conflicts thereby reducing agency costs of equity, and high reputation auditors can protect investors.