Research On The Correlation Between Audit Market Structure And Market Performance

Independent audit is a kind of governance mechanism to advance the allocation efficiency of the capital market resource and increase the social welfare. Higher auditor market performance can help to achieve to this objective, the audit quality is the core of the audit market performance, the audit quality is better, and the market performance is better. Using the theoretical basis and research approach provided by the industrial organization theory; this paper presents an analysis of the CPA industry of China. Our purpose is to review the praxis of the auditor market structure, and analyze the relationship between auditor market structure and market performance.At first, we analyzed the relationship between auditor market structure and market performance followed this basic thought, our basic mentality was the high degree of concentration audit market is still effective, it can provide the high grade audit service; After the market was divided by several big accounting firms, specialization become the competition strategy of the big accounting firms. Due to the firm's dedicated investment and the existence of learning effect, the auditor's industry expertise can improve market performance; the auditor's industry specialization enhanced the audit market enter barriers, specifically the re-enter barriers, and meanwhile withdrawal barriers is higher. The industrial barrier enhancement could improve the market performance. The market's strong localization weakens the market competition and causes the market performance worse. In these theoretical analyses foundations, we using the data of those listed firms during 2004 and 2005 in the Chinese securities market, and measuring audit quality by the discretionary accruals calculated by the KS model, investigates the relationship between auditor market structure and market performance. We find that after controlling the influence of other variables, auditor market structure and market performance existing the flowing relationship: audit market concentration and market performance has positive correlation; the market enter barrier and withdrawal barrier to be higher, the market performance is better; the market's strong localization causes the market performance worse. The auditor's industry expertise not only failed to improve the market performance, but lower the market performance. The industry specialist gains the audit fee premiums. Meanwhile, this thesis puts forward some suggestions which optimize the audit market structure to higher the market performance.