The Empirical Study Of Price Competition, Price Regulation And Audit Litigation Risk

In the 21st century, economy has brought a series of changes. The traditional audit also inevitably face environmental challenges of change, in this case the audit industry also began to appear with all kinds of development. Compared with the west audit market monopoly, lower market concentration have presented large numbers of accounting firms with small scale and low industry specialization. The number of audit firms is far more than the market needs. The imbalance of supply and demand lead to the fierce competition in the audit market, and the low price competition become a major means of the firm to drum up business. Vicious price competition not only violate the market price mechanism, but also influence the audit quality to a large extent, which will bring firms and the auditees with litigation risk After comprehensively deepen reforms in the Third Plenary Session of the eighteen implementation, the corresponding laws and regulations gradually improve. All of this means that auditing litigation risk in Chinese market will become the focus of attention. In order to protect the normal operation of the audit market, the relevant regulatory agencies issued measures to define audit services at the lowest price to maintain audit quality. In fact, the effect of price regulation is still an open question, so I try to study price regulation and audit litigation risk in this article.Firstly, this paper reviews the related foreign and domestic literatures. We found that the audit price is made up of audit cost and audit risk premium, and current study showed low price competition could damage the audit quality to some extent. As we all known, the audit quality directly influence audit litigation risk. The paper selected 176 Chinese listed companies as research sample to test hypothesis from 2007 to 2013. The empirical model is established on the audit pricing model that Simunic (1980) proposed. The paper aims at exploring the relationship of low price competition and audit litigation risk, and it wants to find the impact of price regulation and different types of audit opinion.The paper found that:for the low price competition, the audit litigation risk is significantly negative correlated to the actual decline rate, while the audit opinion and audit litigation risk show a significant positive correlation. And audit litigation risk does not show significant decline after price regulation in 2010. In addition, the potential innovation of the article is that:(1) this paper discusses the relationship between audit litigation risk and low price competition, and makes a complement to the influential factors of audit price; (2) this paper pays attention to the audit opinion and audit litigation risk for low price competition, which guide us to attach great importance to the value of audit opinion’s message; (3) check the effect of price regulation on litigation risk, in order to put forward a more effective way.