The Relevant Research Between Internal Governance Of Listed Company And Audit Fees Based On The Agency Cost Perspective

Many scandals in accounting area have been emerging since the1980s, andalmost all of the scandals are closely related to the defacts of corporate governance.Although the problems are obvious and serious, the demand for independent externalaudits’ service is not high in many companies with imperfect governance. Audit fee,the value of hiring an accounting firm to provide audit services, is bound to haverelationships with the internal governance. This is why the study about the correlationbetween internal governance and audit fees has strong practical significance.First of all, this thesis depicts the concept of internal governance and audit fee,and introduces two important theories related to the internal governance and auditfees,these two theories are principal-agent theory and the concept of entrustedeconomic responsibility. Based on these descriptions and a perspective of agencycosts, this article analyses the relationship between corporate governance and auditfees with qualitative analysis, drawing conclusions as follows:(1) a more effectiveinternal governance leads to a lower agency cost and (2) a lower agency cost candecrease the demand for high quality of independent audit, so that the company iswilling to pay less for the accounting firm’s audit service.Secondly, in order to carry out the analysis in a quantitative method, this papertreats seven representative factors as independent variables based on three aspects(theownership structure, board characteristics, management features), and treats audit feesas dependent variable to establish a regression model to demonstrate the correlationbetween internal governance and audit fees with the data of Shanghai listedcompanies from2010to2012. The results show that the equity concentration, thebiggest shareholder, proportion of independent directors, the chairman and generalmanager(concurrent), the number of the BOD meetings have significant influences onaudit fees.Finally, according to the conclusions of this study, suggestions and countermeasures about how to improve the efficiency of the internal governance andspecificate the system of audit fee in China are puted forward. Besides, the paperpoints out the limitations of research papers.