Does High Quality Audit Mitigate Tunneling?

The funds occupying of the large shareholder has been a common problem in China’s capital market, which is also an important area of corporate governance. Sound internal governance and perfect external supervision market together constitute a healthy corporate governance environment. In the mature Western capital markets, high quality audit, as a part of an independent external oversight of the market, plays an important role in controlling agency conflict, so in our capital markets, can high quality audit also play an effective supervision role and thus control the large shareholder tunneling of the listed company?In this paper,13,943sample data for the China’s non-financial sectors in Shanghai and Shenzhen A-share listed companies from2003to2012is chosen to make an empirical study on the impact upon the relationship between the audit quality and the large shareholders tunneling. In this paper, a large-scale accounting firm is adopted as an alternative variable of high quality audit, in detail, whether the accounting firm is one of the domestic "Top Ten" accounting firms is selected to measure the scale of the accounting firm, which is also the innovation point of this paper compared with others which selected the international "Big Four" as an alternative variable of high quality audit, In addition, in the robustness test, we further alter the variable of funds occupation of the large shareholders and the high-quality audit, choosing an international "Big Four" as an alternative variable of the high quality audit to make sure that the conclusions of this paper are more robust.The results show that high quality audit and major shareholder tunneling was significantly negatively correlated, that is to say, if a listed company chooses the large-scaled accounting firms which represent the high quality audit in the annual audit, the degree of the funds occupation of the large shareholders will be lower. Through an in-depth study, in the state-controlled listed companies with more government intervention, compared with those non-state-controlled listed companies, the effect of the high-quality audit used for controlling the tunneling of the large shareholders will be significantly weakened, indicating the nature of the actual controller will also significantly affect the deterrent effect of the audit quality uponthe large shareholders.