Research On Audit Market Segmentation In China

Market segmentation is one of the stubborn and chronic problems for the operation of the economics in the course of china's economic reform. Market segmentation has had a severe negative impact on economic development. Breaking regional market segmentation and the establishment of a unified domestic market, is not only an important aspect in the course of the construction of China's socialist market economy system, but also a very important study subject in the theoretical study for many years. The studies of regional economist's for market segmentation mostly focus on the macro and synthesis fields, the specific market segmentation research most about product and factors markets, but less about the service market, especially audit market. Most studies on the market segmentation that audit scholars have made stay on the description, lack of deep and systematic study. Audit market is an important part of the service market, a special system environment and the development of the industry determines that there still exists severe regional segmentation problem. The existence of the audit market is an inevitable requirement of capital market development, the audit market segmentation is not only related to the audit profession and orderly development of its own, but also has a direct impact on capital market to guide resources distribution function effectively. Therefore a systematic study on audit market segmentation is made in this paper, from a perspective of the local government action mechanism and its impact in the course of the domestic unified market construction. This paper make a study about the reasons of audit market regional segmentation and from the perspective of the functions of local governments and their behavior, using the theory of theory of relationship between the government and the market and the theory of unified market, and an empirical test is made, this paper also make a study about the form of the audit market regional segmentation, and makes an accurate measure of the audit market regional segmentation, using the securities market data, this paper discusses the negative effects of audit market regional segmentation from the view of the effectiveness of the audit market, and gives some recommendations to unify the audit market.This study can provide empirical evidence from service market for our regional market segmentation research, and further enrich and deepen the audit market research, meanwhile, can propose policy reference for the unity of China's audit market.This research consists of six chapters. The main contents of every chapter are as follows:The first chapter puts forward the definition of Market segmentation and Audit market segmentation, and then summarizes and evaluates existed research on Market segmentation and Audit market segmentation, on the basis of them, the clue of this paper is given.Audit market segmentation is the conduct of segmenting the audit market or the status of non-uniform in audit market. Audit market segmentation consists of not only segmentation of the business transactions but also between different areas. This research pays attention to the latter segmentation which is the above-mentioned.In recent years, the academic research about the issue of market segmentation gradually becomes rich and in-depth, but most of them are macro and synthesis studies, or focus on the product and factors markets, and less research on the service market has been done yet. Scholars for Audit market segmentation are always limited to concern about phenomenon, neglecting the underlying causes, consequences, and especially the governance for audit market segmentation. By studying for phenomenon of audit market segmentation, this paper will systematically investigate the causes of the status, the negative effects and their countermeasures.The second chapter gives the reasons of the formation of market segmentation. First, this chapter summarizes and evaluates the theory about the relationship between the Government and the market; Secondly, the chapter introduces that, in the transition period of our country, the relationship between the Government and the market, Government intervention, especially the problems of local Government intervention and the formation of market segmentation; then, it gives the research and analysis of the basic factors and characteristics of audit market, and based on the analysis above, with the combination of background of transition, analyze the reasons for the formation of regional segmentation. The theory about the relationship between the government and the market and its practice have proved that pure marketing or governmental plan alone is not the best way to solve our economic problems. Both the Government and the market have their respective comparative advantages and relative defects. For the objective of effectively improving the situation of the market economy, it is necessary to insist function of the market, and also must pay attention to the role of Government regulation. The socialist market economy is a kind of economy mode which is an organic combination of market regulation and Government intervention. A correct understanding of the relationship between the Government and the market and properly positioning the role of the Government is an important problem during the process of economic restructuring in our country. On one hand, the Government has to compensate and correct the "market failure" to fulfill its functions in general; on the other hand, the existence of "missing market" also requires the Government play its function to promote market development and set up a unified market of fair competition. In reality, government intervention in our country still has many problems, the Government, especially local government's "offside" and "absence", led to the formation of market segmentation. Audit market is a general common market but with particularity, and this kind of particularity will have a certain impact on the choice of certified public accountants, so that it's much easy to lead to the Audit market segmentation. Decentralization reform made the local government economic benefits entity, local governments not only access to the right of residual claim to and control of national economics in the region, and the regional authority and control functions of the micro-control at a certain extent, has also been enhanced. The development of accounting industry and the regulatory regime allows local governments to be able to intervene the accounting firms. To gain local benefits through listed companies, local government often intervene listed companies on the choice of accounting firms by administrative measures. The results of the local preference sets up regional barriers in the audit market, and limit the flow of accounting firms, thereby artificially created the segmentation of the audit market.The third chapter summarized manifestations of China's audit market regional segmentation by collecting cases; defined the method to measure the audit market regional segmentation; measured the degree of China's share A audit market segmentation in the whole country and in provinces respectively. The forms of audit market segmentation mainly include: designating local accounting firms by sovernment files; giving preference to local accounting firms in bidding; some informal invisible restrictions, such as "hello"; shielding the local accounting firms. Regional self-circulation can accurately measure the degree of the audit market segmentation. In this paper, the statistical results show that: in the period of 1993-2006, there is an obvious phenomenon of segmentation in China's share A market, although the degree of segmentation was gradually reduced with the time passing by, the segmentation is still very serious; the annual average degree of segmentation in more than 70% in Beijing, Fujian, Guangdong, Chongqing, Jiangsu, Hunan, Zhejiang(in accordance with the number of companies to make statistics), the annual average degree of segmentation in Shanghai is as high as 91.18% (in accordance with the number of companies to make statistics), indicating that China's listed companies in developed areas are more likely to choose local firms to provide audit services.The forth Chapter proposes three assumptions on the base of theoretical analysis in the Chapter II, to test whether the local government interventions are the influencing factors of the audit market segmentation. Therefore, in this paper, it takes share A market-related data from 2003 to 2006 in China for the primary sample, made an empirical test with the method of Logistic regression analysis.This study showed that: controlling by local government and the supply of audit services are the factors in the sample companies'choosing local firms, the result coincides with the theoretical analysis in Chapter II, which said that local government intervention bring about the audit market segmentation. Meanwhile, empirical research found that: though people usually think that the higher the level of the market-oriented: the weaker government intervention, the situation is not found in the share A audit market. Even areas with high levels of market-oriented, the listed companies still tend to choose local firms to provide audit services, it showed that some of the areas with higher level of market-oriented in eastern China still exist local protection, the audit market segmentation still need treatment.The fifth chapter aims to analyze the negative influence of audit market segmentation. The function of the audit market is to distribute auditing resources among economic entities. A reasonable distribution of audit resources is to be able to make limited resources in a given condition to meet the greatest demands of capital markets. The higher level of assurance the auditing Services can provide, that is the better audit quality is, the more benefit to the reasonable distribution of funds, the better for the capital market to play its function.This paper analyzes the negative influence of market segmentation mainly in perspective of audit quality. Firstly, using the type of audit opinion, punishment as alternative variables, according to Chapter IV, as well as the information sample data of the punishment for accounting firm and certified public accountants made by the China Securities Regulatory Commission, this paper have made a comparison of audit quality between the local accounting firms and the remote accounting firms. The results showed that the local firms have got lower audit quality than remote ones; Secondly, the Da-qing-Lian-yi case, Hubei Li-Hua Certified Public Accountants case, Hong-guang company case indicate that the protection for local accounting firms made the audit quality great uncertain, Which concluded that: audit market segmentation has a negative impact on audit quality.Considering the reasons for the formation of the audit market segmentation, the sixth chapter proposes countermeasures involving three aspects: such as government, enterprises, and Certified Public Accountant industry. Audit market segmentation lowers the quality of the audit of the stock market, breaking the audit market segmentation, and promoting the formation of a unified audit market are concerned as the direction that related parties should work towards in the future.This paper considers that the transformation of government functions, setting up the enterprises property contact across the region, the further improvement of the corporate governance structure, the reform of the audit appointment mechanisms, the establishment of Institute of Certified Public Accountants in accordance with the economic zones, and promoting cross-regional merger of accounting firms etc. will help promote China's unification of the audit market.