The Effect Of Ultimate Controller’s Behavior On Audit Fees

External supervision is an effective measure to alleviate the agency contradiction. In order to supervise the management behavior, the shareholder has an incentive to choose high-quality audit and pay higher audit fees. Different from the western capital market, the participants in Chinese capital market is highly concentrated, the ultimate controller control the listed companies through pyramid ownership structure. Thus, the behavior of listed companies is the embodiment of the ultimate controlling interests, the need for external audit services also relay on controls motivation and ability of the ultimate controller. Under the third wave of accounting firm’s merge, the professional competence and independence of auditors have been enhanced, which have improved the audit services lagging behind situation of Chinese capital market, make it possible to regulate the controlling shareholders and management. So the audit fees have become an important issue after the wave of merge. On the one hand, audit fees affected by the bargaining power of both supply and demand side; on the other hand, audit fees also affected by the motivation and ability of ultimate controller.Based on the background of the third accounting firm’s merge, the paper studies the effect of ultimate controller’s acts on audit fees. We take 9236 data of Shanghai and Shenzhen Stock Exchanges’ A-share as the examples from 2010 to 2014.The results show that the ultimate controller’s encroachment act is significantly related with audit fees. In addition, the paper finds that the degree of separation of ultimate cash flow rights and ultimate control rights is positively correlated with audit fees in the low level while negatively in the high level. The nature of property rights and audit fees is a significant negative correlation, which is compared with the ultimate controller of non-state-owned listed companies, the ultimate controller of state-owned listed companies paid lower audit fees. When taking into account the nature of property rights of the ultimate controller, the cash flow rights、the controlling level are significantly positive correlated with audit fees, that is the higher the cash flow rights, the more obvious the protective act, the more willing to pay higher audit fees. And also, the higher the controlling level, the more obvious the protective act, the more willing to pay higher audit fees. We further found that the nature of property rights inhibit the relationship between the cash flow rights、the controlling level and audit fees, which is compared with the ultimate controller of non-state-owned listed companies, the ultimate controller of state-owned listed companies paid less audit fees.