Managerial Overconfidence?Board Independence On Audit Fees

After the implementation of internal control audit and integrated audit,the research on audit fee has received more attention.But most of the research on audit expense are based on "rational man hypothesis".With the emergence of herd behavior and other social phenomena,the theoretical and practical circles have realized that the "rational man hypothesis" is inconsistent with the reality and cannot solve the practical problems,which forces people to begin to face up to the psychological deviation of different managers and the different consequences,especially the change of audit cost caused by the overconfidence of managers.As a vital mechanism of corporate governance,the independence of board of directors plays a decisive role in the effect of corporate governance.Therefore,the independence of the board of directors will inevitably have an impact on audit expenses and the adverse consequences of managers' overconfidence through the perspective of corporate governance.Therefore,under such a background,it is meaningful for us to research the relationship between overconfidence of managers,board independence and audit costs of enterprises.This paper selected the empirical data of a-share listed companies on the main board of Shanghai stock exchange and Shenzhen stock exchange which from 2012 to 2017 as samples.Then,on the basis of elaborating the principal-agent theory,the high ladder theory,the control illusion theory and the risk premium theory,This paper probes into the influence of the overconfident arrogance of the managers on the audit expense and the inhibition of the board independence on the influence,as well as the influence of the board independence on the audit expense.Therefore,this paper is mainly carried out from three aspects:Firstly,whether the overconfidence of managers leads to the rise of audit fees;Secondly,whether the improvement of board independence can reduce the audit cost;Thirdly,when the degree of independence of the board of directors increases,whether it can effectively curb the negative impact of the overconfidence of managers on audit fees.This paper used empirical analysis to draw the following conclusions:(1)When the degree of psychological deviation of overconfidence of managers increases,the cost of enterprise audit will increase significantly.(2)When the independence of the board of directors is improved,the audit expenses of listed companies are significantly reduced.(3)If the independence of the board of directors is higher,it is more effective for the board of directors to curb the adverse impact of the overconfidence of managers on audit expenses.Finally,the paper put forward some advice from the perspective of companies and accounting firms.For the enterprise,if they want to restrain managers overconfidence psychological and reduce the loss brought by managers psychological deviation,They need to strengthen the internal audit,perfect the internal control system,realize the power balance between managers,and they should improve the system of board of directors,especially increase the independence of board of directors.The accounting firm should include the assessment of the overconfidence of managers and the independence of the board of directors into the risk assessment process,and pay attention to the audit risk premium brought by these two factors,so as to reduce the audit risk and risk loss.