The Empirical Study Of Managerial Ownership, Analyst Following And Audit Fee

The relationship between audit fees and corporate governance level have been reportedby many researchers both at home and abroad, but as two environmental factors of corporategovernance, managerial stock ownership and analysts following have been researched byfew scholars. At present, the companies with managerial stock ownership are becoming moreand more in our country, shareholding proportion also increased gradually. So it is veryimportant for corporate governance and audit pricing to study managerial stock ownership. Atthe same time, analyst industry is at the initial stage in our country, and growing gradually.Research for the monitoring role of analysts following can contribute to China’s capitalmarket standardization and effectiveness. As two aspects of corporate governance, whethermanagerial ownership and analyst following can play the effective governance roles throughinternal motivation and external supervision, and decrease the agency cost of company, thenlead to lower audit fees? So this paper studies whether managerial ownership and analystfollowing relate to audit fees.This article selects listed companies from2009to2011as research samples, based onthe audit pricing model to build the managerial stock ownership quadratic model and thepiecewise regression model. Through empirical testing, this paper found the relation betweenmanagerial stock ownership and audit fees present nonlinear relation. First of all, the level ofmanagerial stock ownership is negatively related to the audit fee under certain conditions(shareholding level is less than42.13%)，so alignment hypothesis is established. It showsmanagement equity incentive can play significant effect in listed companies. Whenmanagement shareholding increasing, managers tend to be consistent with the shareholdersfor the interests, this can relieve the agency conflict of company effectively, which lead toreduce audit fees. Secondly, when the proportion of management is to achieve a certain range(>42.13%), with the increase of management shareholding, external constraint will becomemore and more weak, managers can pursuit more personal interests, the agent cost willincrease, thus it influence audit fees positively, this conclusion supports the entrenchmenthypothesis. Finally, considering that the managerial stock ownership is generally low inChina, this paper argues that alignment hypothesis play a dominant position, managementequity is conducive to the improvement of corporate governance structure, thus to reduceaudit fees. About the relation between analyst following and audit fee, the empirical results showthat they are related positively, this conclusion supports the "pressure effect". Analystfollowing cannot effectively play market supervision effect in our country. Instead, theymake managers have a certain degree of stress through tracking the financial information oflisted companies, and increase their earnings management motivation, so lead to higher auditfees.