Do The Resignation Of Politically Connected Directors Affect Audit Fees?

As China is in the transition period,various laws and economic systems are not perfect.In this context,“relationship” as a special resource appears on the stage.At the same time,China's independent director market has also spawned a spectacular phenomenon of “revolving door of politics and business”,in which a large number of retired officials serve as independent directors of enterprises.The emergence of this phenomenon makes independent directors add a rent-seeking problem to the original doubts.What do these “retired” independent officials bring to an enterprise?Similar to the independent director mechanism,the auditor acts as an important third party of the external governance of the company,and the audit fee reflects the costs incurred during the audit and the risk premium in case of an audit failure.In emerging countries,the government has a large number of resources.Enterprises in connection with the government can not only obtain diverse resources,but also enjoy the “shelter” of the government,effectively reducing the risks.Then,does the existence of such a “relationship” affect the auditor's audit fees?Although the political association has received the attention of many scholars in recent years,a lot of literature studied the role of political association from the aspect of tax incentives,etc.However,there are big endogenous problems,and so far,there has been little research on how political affiliation affects audit behavior.In light of this,this paper is based on the exogenous event of “Rule 18” in October 2013.Measure the value of political affiliation to the company by discussing the loss of political collection whether impact on audit fees.Empirical results show that:(1)After the resignation of politically connected directors,the auditor did raise the audit fee,and the change of the audit fee is only due to the departure of the official;(2)Compared with state-owned enterprises,the resignation of politically connected directors of non-state-owned enterprises has a more significant impact on auditor audit fees;(3)The worse the market environment in which the company is located is,the stronger the impact of the resignation of the politically connected directors is on audit fees,However,state-owned property rights will weaken the impact of the market environment;(4)Further research shows that the rise of enterprise risk is the reason why the resignation of politically connected directors acts on audit fees,which means that the value of politically connected directors mainly lies in the reduction of enterprise risk.Different from existing studies,the contributions of this paper are as follows:(1)With “Rule 18” as the background,this research has solved the endogenous problems in previous empirical studies and increased the effectiveness of empirical results;(2)The paper verifies the value of political affiliation to enterprises and the impact of government actions on auditors' audit behaviors under China's unique institutional background.From this angle,it provides a new research perspective on the relationship between political affiliation,independent directors and audit risk response;(3)The paper intends to enrich the relevant research on the economic consequences of the loss of political association,and prompt enterprises to reflect upon the uncertainty and vulnerability of political association.