D&O Insurance And Audit Fees

As a method of controlling risk of directors and officers,D&O insurance has a high rate of purchasing in the western developed countries.However,even though D&O insurance is created to protect directors and officers,controls corporate risk and improves revenue,the consequences are controversial.Especially,the effect of D&O insurance is more uncertain in Chinese unmatured capital market.Therefore,the effect of D&O insurance is worthy to be discussed,especially in Chinese unmatured capital market.Test by using the data of Chinese listed companies' D&O insurance,audit fees and other related data between 2007-2016 as sample,combining canonical parse and empirical analysis,this paper studies the influence on the audit fees after the introduction of D&O insurance in different institutional environment and extent of earning management.We also test how the D&O insurance influences audit fees.The study reveals that introduction of D&O insurance will increase audit fees.Furthermore,low level of marketization process and high level of earning management will strengthen the positive relationship between introduction of D&O insurance and audit fees.We also test that how D&O insurance influenced audit fees,find out there are mesomeric effects between D&O insurance,litigation risk and audit fees.Our research has three following contributions:First,our research is useful to have a better understanding about the role of D&O insurance played in process of auditing,and this study is significant to the decrease of litigation risk and audit fees.Second,this research reveals effects of marketization process and earning management,which may influence the relationship between D&O insurance and audit fees.This will help to lead and limit behaviors of corporate.Third,our study test the relationship between D&O insurance and litigation risk directly.We can know how D&O insurance influence the audit fees and we will know how to control litigation risk and audit fees by this.