Equity Incentive And Auditor Choice

With the separation of the management and ownership in modern enterprise, the agency conflict between shareholders and managers are increasingly serious. Based on the principal-agent theory, equity incentive and the external audit arise at the moment. As one of the important means of internal governance, enterprise performance and managers’own interests are closely linked because of equity incentive,equity incentive arouses their working enthusiasm and exerts an synergistic influence between shareholders and managers, as a consequence, it solves agency conflict to some extent and reduces agency costs; As one of the important external governance means, independent audit is an important mechanism to reduce the agency costs, it can effectively reduce the adverse selection and moral hazard, the auditors who have higher reputation can reduce the degree of information asymmetry. So the equity incentive and independent auditing can achieve the same effect on corporate governance, are there some complementary or alternative relations between them? Complementary relationship refers to the companies whose performance are outstanding, internal governance are effective, the prospects are good,in order to transfer the "good news" to the market, guiding the investors to make the right decisions, the companies will choose the high reputation auditor to audit the financial statements. In this environment,equity incentive boosts the company’s demand for high quality auditors.; alternative relationship means that both of them can reach the effect of corporate governance, according to pay the cost of equity,equity incentive plan achieves the goal that shareholders interests converge with managers, in order to save the cost of corporate governance, shareholders may not be willing to spend a lot of audit fee hiring high reputation of auditors, so the equity incentive will reduce the company power that they pursue the high quality of auditing services. Further, whether equity incentive intensity, form and the time can affect the choice of the auditor or not?We select 2007-2013 A-share listed companies as foundation, after excluding the financial companies, incomplete date companies,ST and *ST companies, we get 13329 samples, finally we use Stata12.0 for empirical testing, the main empirical conclusions include:(1) the companies which implement equity incentive tend to choose the big four international or domestic top ten; (2) compared with stock options, the companies which implement restricted stock put more significant impact on auditor choice, and the stronger the incentive intensity is, the more demand to high prestige auditor the companies stimulate; (3) the longer equity incentive time are, the stronger the motivation of improving the quality of audit is. Research conclusion produces a certain theoretical guiding about how the policy makers stimulate high quality auditing demand through the equity incentive.