The Analysis On Correlation Of Audit Quality And Cost Of Seasoned Equity Offerings

As one of an important financing ways, Seasoned Equity Offerings has been widely concerned. In Chinese capital market, the legal protection and corporate governance systems lag behind the mature market in Europe and America. The particularity of the Chinese capital market makes the study of Seasoned Equity Offerings in this environment become meaningful. For listed companies, How to reduce the information risk under the asymmetric information by improving the quality of information disclosure, reducing the cost of Seasoned Equity Offerings? For CPA firms, whether the audit of financial statement can play an effective supervisory role to improve the quality of information disclosure? And reduce the information risk? The existing literature focused on the relationship between financing decisions and audit quality in the secondary market. Few literature deals with the relationship between cost of SEOs and audit quality in the primary market(Bo,H.,Huang,Z.,& Wang,C.,2011). Therefore, starting from the cost of SEOs in the primary market, we selected the unbalanced panel data of SEOs from 2002 to 2014 as the sample and reveals the empirical relationship between audit quality and cost of SEOs in the primary market of A-share of China by empirical analysis.Although scholars have explored the relationship between audit quality and cost of SEOs, the research on cost of SEOs are concentrated in the market of Europe and America. Most of scholars focused on the underpricing and issue withdrawal of cost of SEOs, but the research on the relationship between audit quality and cost of SEOs in the primary market of China, whose value is the third of world, is limited. In addition, the studies about influencing factors of cost of SEOs lack of support of economic theory model. It makes the selection of control variable in the empirical analysis has great randomness and the conclusions are also different.Since the non-tradable shares reform began in May 2005 in China, academic and social public has always paid close attention to the impact of reform on listed companies all the time. Scholars mainly explore the impact of reform from corporate governance mechanism、agency conflict and the degree of information disclosure and so on. Although most of listed companies in China have implemented the non-tradable shares reform, the state-controlled listed companies still occupy absolute proportion. State-controlled listed companies can get dividends of policy from government. Under the background of policy tilt and political asylum for state-controlled listed companies, as the external mechanism, whether audit of CPA firms can play a role of effective supervision and transfer the valuable information of financial statements? Compared with the time before non-tradable shares reform, whether the impact of audit of CPA firms on reducing the cost of SEOs is enhanced? Academic research on these problems is limited and it has not been a sound conclusion.Based on combing the related literature and learning from the empirical analysis of scholars at home and abroad. Starting from influencing factors of SEOs, and using CPA firm’s scale virtual variable as an agent for audit quality. We respectively explore the relationship between audit quality and cost of SEOs in the primary market of A-share in China from the perspective of whole sample of SEOs 、 types of SEOs and the non-tradable shares reform. To ensure the results of main and further tests are robust, we use the top ten domestic CPA firms and discretionary accruals as the proxy variable of audit quality in the robustness test.The main conclusions of our study are as follows:(1)There is a negative correlation between audit quality and cost of SEOs if the other condition was invariable, namely, when there is information asymmetry between issue companies and outside investors, higher audit quality can make listed companies disclose information of higher quality, reduce information risk and cost of SEOs.(2)From the perspective of the types of SEOs, the effectiveness of audit quality to reduce the cost of SEOs in private placement is weaker than that in right issue and public offerings. It shows that process of SEOs in right issue and public offerings is more difficult and has higher information transparency than that in private placement. Because of larger number and better quality of information, CPA firms can provide audit report of higher quality. Underwriters and outside investors will prefer to make judgment in accordance with the audit report. It will make effectiveness of audit quality to reduce the cost of SEOs become stronger. Compared to right issue and private placement, the effectiveness of audit quality to reduce cost of SEOs in public offerings is stronger. No matter the difficulty of process、risk bearing and transparency of information. The effectiveness of supervision over the quality of information of audit will stronger in public offerings, and audit here can reduce more information risk and cost of SEOs.(3)After the non-tradable shares reform, the influence of audit to reduce the cost of SEOs becomes stronger. It shows that after non-tradable shares reform, the governance structure of listed companies and information disclosure have been improved. The effectiveness of supervision of Audit of CPA firms has become much stronger, and it can reduce more information risk under information asymmetry and underwriting risk, and then reduce the cost of SEOs.