A Study On The Relationship Between Auditor Tenure And The Efficiency Of Listed Companies' Investment

The early 20th century, the United States and some other countries have an outbreak of a series of financial fraud scandal which sparked a widespread concern of the relationship between auditor tenure and audit quality. It is generally believed that the too short auditor tenure will affect the auditor's practice proficiency, while the very long auditor tenure would affect the independence of auditors, so there is a delicate relationship between audit tenure and audit quality. Academic discussion of the auditor tenure is becoming a hot issue. However, despite this discussion is intensive, from domestic and international view point, few scholars do a study about the relationship between the efficiency of the investment and the auditor tenure. The problem about the efficiency of investment is in a problem face by many countries today. The insufficient investment in Chinese listed companies is particularly serious. Inefficient Investment includes under-investment and over-investment. Over-investment will lead to the scarcity of capital deposit in areas of overproduction, waste resources, increase bad debts, trig the financial risk; Under-investment will lead to a large number of the original scarce capital become idle funds, result in the slow growth speed of listed companies, damage seriously the interests of investors. Therefore, the efficiency of the listed firm's investment efficiency is related to companies, countries and whole society. A study about the relationship between the efficiency of investment and auditor tenure can highlight the important theoretical value and practical significance for research for the improvement of China's listed companies, investment decisions and the optimization of the efficiency of capital allocation in China. In this reality, this paper did a systematic theoretical analysis and rigorous empirical test to research the relationship between the efficiency of listed companies'investment and auditor tenure, and concluded that: the relationship between audit tenure and the efficiency of listed companies'investment is the inverted U-type, namely the relationship between audit tenure and the inefficiency of some of the listed companies (under-investment and over-investment) is U-type. The assumption was proposed by three steps on theoretical analysis. First of all, this paper reviewed the existing relevant studies about the relationship between auditor tenure and audit quality literature and found the nonlinear relationship between the auditor tenure and the audit quality from two aspects that are professional competence and auditor independence inspection; Secondly, this article from the view of principal-agent theory and asymmetric information theory, did an analysis about influence of the financial statements, information disclosure to invest the efficiency of the list companies'investment; Finally, the paper hold that high audit quality of listed companies must be able to improve the quality of the disclosure of the financial statements, thus there is beneficial to monitor the company's management and solve the information asymmetry between outside investors the internal management to scale down the "moral hazard" and reduce "adverse selection" to increase the efficiency of investment.In the theoretical analysis and empirical testing, this article classified the inefficiency of investment as under-investment and over-investment in the discussion. In the theoretical analysis and empirical testing, this article will classify the efficiency of investment as under-investment and over-investment. In empirical testing, this paper adopts Richardson (2006) model to obtain the residual value as each company's non-efficiency investment component, and the component whose residual value is less than 0, as under-investment group, while taking the absolute value of residuals. The component whose residual value is more than 0, is the over-investment group. In this article, the audit term is defined as that the accounting firm continuously provide the number of years of audit services for the same agencies, rather than auditors continuously provide the number of years of audit services for the same body. Subsequently, this paper regards the residual value as the dependent variable, audit tenure, the audit term treatment with center square as independent variables, while introduce the relevant control variable for linear regression. Evidence was found, the audit period of treatment with central square has a positive correlation with the under-investment and over-investment, which preliminary indicates the audit period has a positive U-term relationship with insufficient investment and over-investment. In order to further clarify the issue, this article will divide the audit period into less than 5 audit period and greater than 5, which be regressed respectively according to the above model .The results indicate in the group that he audit period less than 5 years, with the extension of the audit period, insufficient investment and over-investment will be reduced while investment efficiency will be improved .in the group that he audit period more than 5 years, with the extension of the audit period, insufficient investment and over-investment increases, while investment efficiency will be reduced.Relevant policy recommendations, Including formulating a mandatory rotation policy with long term office of accounting firm and a mandatory rotation policy with short term office of accounting firm, improving the internal governance, implementing a reasonable appointment system of accounting firm, carrying out Peer Review System in CPA that can to the maximum extent possible to effectively ensuring the reasonableness of the length of audit tenure, exerting implementation effect which the policy is due. Undoubtedly, these studies will urge theorists and practitioners to treat the problems of audit tenure and investment efficiency with a more rational perspective from the perspective of audit quality。...