Audit Quality,Corporate Reputation And The Choice Of Commercial Credit Mode

As an important channel of financing, the Commercial Credit has so many merits by contrast with other channels of financing, such as its convenience, its low-cost and low-risk. In the developed western countries, the scale of commercial credit financing is huge and it is widely used among enterprises. Our Chinese enterprises use considerable scale of commercial credit as well, whether the relative or absolute scale, and there is a growing tendency that enterprises financing through this way, especially when they are facing with the credit constraints.Making full use of Commercial Credit is of great significance, not only for the single enterprise itself but also for the whole national economy, it reduces credit constraints, enriches financing channel, optimize capital structure and so on. So since the1960s, the researches on commercial credit have never been interrupted, and fabulous achievements have been made until now. The factors that influence the Commercial Credit financing are complex, not only the enterprises themselves, but also the whole macroeconomic environment such as the mutual-trust relationship and the development of social financial system.YunSheng Chen(2010) studies the relationship between audit quality and Commercial Credit,while FengWei Liu(2009)studies the relationship between the trust and Commercial Credit, but none of them has ever studied whether the combination of corporation reputation and audit quality will affect the commercial credit or not, this article provides a good opportunity for this perspective.To study this topic, we selected two aspects, audit quality and corporate reputation, and we choose the notes payable, accounts payable and prepayments to measure the transaction costs to investigate the relationship between the commercial credit mode and the factors mentioned above. Using a sample of A-share firms during2001-2009in Shanghai and Shenzhen Stock Exchange, we investigated the internal factors and external circumstances that influence commercial credit. Our empirical research shows audit quality is positive correlative with commercial credit, the better the audit quality is, the lower the credit cost would be. Besides that, we also found that the corporate reputation is negative correlative with commercial credit, and we discovered a substitution effect of the company’s reputation on the quality of audit. By contrast with the audit quality, the company’s reputation may offer more valuable information when the suppliers making their decisions and they will also pay more attention to the reputation. It is crucial to establish and maintain a good reputation, to form a relationship of mutual trust. So we need to pay full attention to the role of the informal mechanism of the company’s reputation in reducing transaction costs.This article is divided into six parts, each part are as follows:The first part is the introduction, there are four aspects including the research background and significance, research methods, research framework and the main contribution of the research. The external audit plays an important implicit guarantees role in the contracting process, assuring free of material misstatement of the financial and accounting information and thus reduce the information asymmetry. The former scholars focus more attention on the relationship between the stockholders and the creditors, but few show interests on the enterprise-supplier relationship. This article offers a new perspective. We illustrated the implications for research from two aspects. We show our research ideas by using the research framework and we displayed the contribution of this article in the end of this part.The second part is the research literature, mainly about the audit quality research literature, the company reputation research literature and the commercial literature. Firstly, we showed the definition of audit quality and its underlined meaning. Secondly, we talked about the company’s reputation:(1) we defined the company’s reputation.(2) we pointed out the importance of company reputation, the relationship between the company’s reputation and financial performance, and the reputation theoretical models and the evaluation system. Then we use the 《Economic Observer》"the Most Admired Companies "as the metrics to measure the company reputation.Thirdly, we displayed the literature review of the commercial credit. It is mainly about the definition of commercial credit, its Influencing factors and financing motives, we also talked about the literature of the relationship between the commercial credit and bank loans, here we introduced four theories, at last we did the literature review and introduced the theme of this article.The third part is theoretical derivation and research hypotheses. This part displayed the Contract theory, market efficiency hypothesis and agency theory, these are the basic theories of this article. Starts from these theories, we raised the hypothesis:(1) Audit quality is positive correlative with commercial credit, the better the audit quality is, the lower the credit cost would be.(2)The corporate reputation is negative correlative with commercial credit and there is a substitution effect of the company’s reputation on the quality of audit.The forth part is the study design. We established research model and used a sample of A-share firms during2001-2009in Shanghai and Shenzhen Stock Exchange,7403samples in total. The first one is about the descriptive statistics of variables, the second one is about the correlation analysis of the main variables.The fifth part is the empirical results and the analysis of the results. We got the regression results using the software statal2.0, Then we do the multiple regression analysis, the two hypothesis are proved to be right. We finally make the robustness test.The sixth part of this chapter mainly address the research conclusions, study limitations and research prospectsThe contributions for this article are as follows:(1) We considered the impact of informal mechanism factors and the audit quality for commercial credit model selection, but not the single factor.(2)We used the "most admired companies" as the metrics to measure the reputation, it is the first attempt among Chinese scholars.(3)It broadens the present empirical research and enriches the literature.In response to these conclusions and contributions, we got two inspirations: the first one is to emphasis on the effect of external independent audit governance, to establish the demand and supply of high-quality audit services, Improve the quality of listed company audit, to oversee the implementation of the legislation of the CPA profession and so on.The second one is to take full advantage of this informal mechanism-reputation. Focus on the company’s reputation and maintain the overall environment of trust is quite important for both individuals and groups, it benefits for all of us.The third one is for individual, we should take every effort to build and maintain our personal reputation.