An Empirical Study On The Relationship Between Audit Quality With Investment Opportunity Set And Discretionary Accruals

Audit, as an oversight regulatory means and institutional arrangements, can notonly effectively solve the agency problems within the enterprise, but also canconstrain the opportunistic behavior of the enterprise management. Meanwhile,corporate investment opportunities is also one of the most concern areas whichscholars are most concerned about in corporate governance and business managementfor a long time. Therefore, this essay selected financial data from2006to2010of theenterprise of Shanghai and Shenzhen-listed A shares in China as the study sample, byremoving finance and insurance industry and the incomplete data, and then obtained5698sample data to construct regression models to examine the relationship betweenaudit quality with corporate investment opportunity and discretionary accruals.Empirical examination found that enterprises with high investment opportunities aremore inclined to choose a high quality audit to supervise its managers, furthermore,with the increase in corporate investment opportunities, the requirements of the auditquality will rise, which shows a significant existence of positive correlation betweenboth. For further explore the inherent connection, this article introduces anothervariable discretionary accruals of earnings management and found that enterpriseswith high investment opportunities are more likely to have more discretionaryaccruals than enterprises with low investment opportunities but this relationship isweaker when they have high audit quality, which means high audit quality can curbthe discretionary accruals of enterprises with high investment opportunities, so thisfurther explained the reason that enterprises are more inclined to pursue high auditquality.The nuclear content and main structure of the article are as follows: The first partintroduces the research background and significance of the article, the home andabroad research status and literature review, research methodology, and innovation ofthis paper and deficiencies. The second part further elaborated and analyzed relatedconcepts and relevance of the audit quality and corporate investment opportunitieswith discretionary accruals. The third part designed the empirical regression model onthe base of the existing theories, including the hypotheses, the size and the source ofsample data, the design of variables and the regression model. The fourth partanalyzed the empirical results of the study variables. The fifth part purposed thecountermeasures and suggestions according to the results of empirical. The sixth part summarized the conclusions and the limitations of this article and insufficiency.