The Effect Of The Pyramidal Stock Ownership Structure Characteristic On Audit Quality

For the first time in 1982, the Chinese Constitution made clear the audit supervision system and the legal status of the audit institution. Since then, our country’s audit has been in the exploration of the continuous advance. Compared with the foreign mature research results, our country has the problem of the development of the audit which began late and whose theory is lack. In 2010, the Ministry of Finance issued a policy to promote the transformation of the form of a limited liability partnership. Since then, the “audit supplier”has become one of the hot spots of domestic auditing research. Domestic scholars have carried out extensive attention on the organization form and scale of accounting firms. At the same time, with the increasing number of domestic accounting firms, the competition between firms is becoming increasingly fierce. And audit market appears the situation of “oversupply”.The listed companies in the identity “audit demand”are leading the domestic auditing market. Different listed companies’ stock ownership structure are different, whose demands for high quality audit are also different. After the accomplishment of the Ownership Reform, the pyramidal structure and state-owned enterprises form the long-term coexistence relationship. It also plays a role in the emerging market as an imperfect alternative mechanism. However, in the existing literatures, combining with stock ownership structure of the audited units, especially combining this kind of special structure —the pyramidal structure, the theoretical study of audit quality is not much. In addition, one of the difficult points of the audit study is that the audit quality can not be measured directly, and can only choose the substitutive indicators to measure the audit quality. Even if the data is properly chosen, the results of the study of the same problem may be quite different because of different substitutive indicators. Therefore, based on the analysis of Chinese national conditions, combined with the stock ownership structure to study the audit quality, it is a meaningful direction.Based on the domestic and foreign literatures, combined with the principal-agent theory and the accounting conservatism theory, the article aims to study the impact of the pyramidal stock ownership structure on audit quality to provide theoretical support for the proposed hypothesis. It selects the five-year data of the a-share listed companies which are in line with the pyramidal stock ownership structure from 2009 to 2013 as sample, and selects the “earnings conservatism”as an alternative indicator of audit quality. First of all, it verifies if there is earnings conservatism by the Basu model. Secondly, it makes an empirical analysis about the impact of the pyramidal stock ownership structure characteristic on audit quality by the C-Score model, from the Pyramid layers, the proportion of the stock ownership which is controlled by the ultimate controlling stock holder and the degree of separation of the two powers. Considering the actual situations in our country, especially, according to the nature of the ultimate controlling stock holder, the two power separation index is divided into two categories, the state-owned and non-state-owned nature. The research results show that first of all, the listed companies in our country which are in line with the pyramidal stock ownership structure exist Earnings Conservatism(the conditions of the continued research). Secondly, in the relationship between the pyramidal stock ownership structure and audit quality, specifically speaking:the more pyramidal layers are, the higher the proportion of the stock ownership which is controlled by the ultimate controlling stock holder is, the greater the two power separation of the state-owned nature in the pyramid structure is, the lower the level of audit quality is(significant negative correlation). And the relations of the two power separation of the non-state-owned nature in the pyramid structure and audit quality are positively correlated, but the regression results are not significant, which shows that the relationship is not obvious.The article makes an empirical analysis on the impact of the pyramidal stock ownership structure on audit quality. Based on the conclusion, it puts forward suggestions to improve audit quality and further points out the possible development direction of future research. It enriches the relevant literatures on the theory of the pyramidal stock ownership structure and audit quality, and also provides a practical basis for improving the audit quality in our country.