An Empirical Study On The Effect Of CEO Duality And Political Connections On Audit Fees

Audit services as a paid labor provided to the customers, considering the effect of therelationship between supply and demand of general goods and services on prices, the pricecharged of auditors should reflect the characteristics and laws of the audit service itself. Auditfees can reflect the audit risk in efficient audit market, and audit risk level determines thelevel of commitment of the audit, so audit fees should compensate for the cost of the audit andrisk, and consider the industry average profit level. Existing studies have examined the linkbetween audit fees and a series of variables (customer size, the complexity of the audit and theaudit assumed risk) based on classic model of Simunic (1980) in the competitive marketenvironment.In the study of audit fees, the vast majority of scholars, in particular, Chinascholars, rarely concerned about the effect of CEO Duality and Political Connections on auditfees.Studies have shown that effective internal control of listed companies can save the costof audit services, while reducing the risk to be borne by the audit services. However, CEODuality can weaken the independence of the board of directors and supervisory functions,reducing the effectiveness of internal controls; Political Connections may induce interestconflicts of various stakeholders and management corrupt motive, resulting in the failure ofinternal control. Therefore, from the point of view of the internal governance of listedcompanies, CEO Duality and Political Connections will lead to deficiencies in internal control,reducing the quality of financial reporting, increasing the risk of auditors. In order to keep theaudit risk at an acceptable low level, auditors must increase investment in audit leading to anincrease of audit fees. That is to say, CEO Duality and Political Connections by affecting thetwo elements of audit fees, thereby affect the final audit fees.In order to verify the impact of CEO Duality and Political Connections on audit fees,using actual data and traditional audit fees test get a more convincing conclusion. Firstly, onthe basis of analysis of domestic and foreign research results and the status quo, assumptionsof this study should be in accordance with the relevant theoretical. Then, A-share motherboard(excluding financial, insurance companies, and ST) listed companies in the Shanghai andShenzhen stock exchange from2008to2011as the research object, through the establishmentof the regression model assumptions empirical test. In the inspection process, the potential problem of multicollinearity and heteroscedasticity existing in the model can be controlledand processed. The empirical results show that CEO Duality and Political Connections arepositively related to audit fees, and the combined effects of CEO Duality and PoliticalConnections is positively related to audit fees which strengthen the positive correlationbetween the independent variables and audit fees.Conclusions of the study on audit fees of this article can explain that China’s auditmarket is efficient to some extent, and able to play a certain amount of supervision role in theinternal governance of listed companies. The conclusion of the study can help to improve theefficiency of internal governance of listed companies, to enhance the awareness of the risks ofthe independent auditors, and to further improve China’s audit fees empirical research.