Product Market Competition, Board Of Directors Governance And Audit Fees

Independent auditing provides reasonable assurance for the quality of accounting information of listed companies, which actively protect the validity of the immature capital market mechanisms of resource allocation. In order to ensure the independence of the audit and the high quality of audit services, CPA would charge certain audit fees according to the status of the company when providing professional services. Scholars has done extensive researches on the factors influencing audit fees, however, past studies have largely confined in the financial characteristics of the firms and the accounting firms’ own expertise, ignores the deeper impact factors(corporate governance). The study of Denis(2001) suggests that the corporate governance effect consists of two parts: internal and external governance mechanisms which interact complementary or alternatively. The external mechanisms including the legal environment and product market competition and so on. So, do external governance mechanisms(market competition of the products) and internal governance mechanisms(Board of directors governance) respectively have influence on the audit fees? What the relationship between external governance mechanisms(market competition of the products) and internal governance mechanisms(Board of directors governance) when they influence the audit fees?Based on the samples of listed companies between2011 to 2013, we make theory analysis and empirical research of the relationship between product market competition, the board governance of listed companies and audit fees. This article explores the influence of the product market competition and the board governance on audit fees, and thoroughly studied the complementary or alternative relationship between external governance mechanisms(market competition of the products) and internal governance mechanisms(Board of directors governance) when they influence the audit fees.The empirical results show that, the increasingly fierce competition in the product market prompted company executives face greater operational risks, and auditors will charge a higher fee when audit risk of listed companies is more rigorous. Effective governance effect of board governance mechanisms can play a more positive impact on audit fees. However, excessive Board size and Chairman con General Manager cannot effectively discharge their oversight functions, the effective incentive mechanism on the Board of Directors and the mechanism of independent directors play the active role in governance. Finally, the effect of the product market competition and governance of the Board on audit costs are complementary, that product market competition has a significant positive effect on improving the strength of the Board’s governance role.At the end of the article, it points out the inadequacies of the study, and provides some suggestions for improving the Board of Directors governance mechanisms and fostering good environment for product market competition,which are good for improving internal governance mechanism of listed company in China and promoting effective restructuring of Chinese enterprises.