The Influence Of Executive Compensation On External Audit Demand

Executive compensation and external audit demand are internal and external supervision mechanism of corporate governance,the study of the relationship between the two parties from the perspective of marketization is of great importance to solve the principal-agent problem,improve the level of corporate governance and improve the performance of the company.By using data of listed companies on the stock market of Shanghai and Shenzhen during 2011 to 2014 as example,we empirically examine the influence of executive compensation on external audit requirements.Then,in the perspective of the process of marketization,this paper empirically tests the impact of the degree of marketization on the relationship between executive compensation and external audit demand;Finally,through the multiple regression analysis,we analyse the influence of the degree of marketization on the relationship between the executive compensation and the external audit demand.There are five chapters in this paper.Chapter 1 is introduction which leads to the problem and pave the way for the following.Chapter 2 is a literature review on factors affecting of the executive compensation and external audit demand,the influencing factors of executive compensation,the influence of the external audit demand in the process of Marketization related literature at home and abroad.Chapter3 introduces theoretical basis and research hypothesis.The hypothesis is underpinned by the definition of executive compensation,the process of marketization and external audit requirements,the relative theories of principal-agent,management incentive theory and fairness preference theory.Chapter 4 is the research design and empirical analysis,which introduces the sample selection and data sources,dependent variable definition,model construction and empirical test.Finally,the last part is the conclusion of this paper,including the summary of the research findings,the relevant countermeasures and suggestions,and the lack of research and future prospects.The major conclusions of the dissertation are as follows:1.The higher executive compensation,the greater the external audit demand.The theoretical analysis shows that,in order to alleviate the principal-agent conflict,it is possible to make a high level of executive compensation to motivate executives' corporate governance behavior;When the agency cost of the enterprise is higher,the supervision of the independent third party is also the demand of external audit.At the same time,through empirical analysis,using audit fees to express the external audit demand,we found that executive compensation and audit fees have a significant positive relationship,it also verifies the results of theoretical analysis.2.The degree of marketization will strengthen the positive impact of executive compensation on external audit demand,compared with the low level of the market area,positive impact of executive compensation on the external audit demand is greater in the high degree of market.Theoretical analysis shows that,in the process of marketization,market competition mechanism will enhance the incentive effect of executive compensation,but it also increase the difficulty of the incentive,the external audit demand of the enterprise will become greater.In addition,through empirical analysis,we find that the degree of marketization has a significant positive impact on the relationship between executive compensation and external audit demand,this is consistent with the theoretical analysis.3.Compared with the non-state-owned enterprises,the degree of marketization in the state-owned enterprises has a more obvious influence on the relationship between executive compensation and external audit demand.Theoretical analysis shows that,in the background of accelerating the process of marketization,the salary incentive of state-owned enterprise executives is more difficult and state-owned enterprises have greater demand for external audit.On the contrary,non-state-owned enterprises are lack of effective demand.Therefore,the impact of the degree of marketization on executive compensation and external audit demand is more obvious in the state-owned enterprises.In this paper,the empirical analysis also shows that the degree of marketization of executive compensation and external audit demand is more significant in the state-owned enterprises.