Corporate Internal Governance Institution And Auditor Switching

In recent years, since the competition of audit market was becoming increasingly fierce and the audit quality draw more and more attention, the frequency and quantity of auditor switching behaviors are improved obviously. The motivation of audit switching consists of many aspects, which can be summarized as two factors:the one is pursuit of high level of audit quality of listed companies, the other is to meet needs of own purpose and demands. The improvement of the pace of strengthening local accounting firms leads to the fierce competition of audit market. Audit quality has become an important criteria for firms to stand out in the competition. The listed company may switch to auditors with high level of reputation to acquire high level of audit quality. However, under the economical background of our country, audit market is still dominated by audit report buyers and clients possess strong bargaining power. If the audit reports cannot meet the needs and expectations of clients, they may consider auditor switching. Under the circumstance, the purpose of auditor switching is to realize internal interests or demands, even impairing audit quality. When the contradiction between auditor and listed company cannot be reconciled, auditor switching happens if listed company tends to recruit submissive auditors to meet its needs.Based on the second kind of agency conflicts, controlling shareholders can insert influence in auditor switching decision making. Based on the first kind of agency conflicts, the board of directors and board of supervisors can also show impact in auditor appointment decision. Operators and managers can influence the appointment of auditors through manipulations of earnings through their contact and communication with auditors for the disclosure issues. So, auditor switching is the comprehensive balance result of controlling shareholders, operators and managers and board of directors under the background of agency conflicts. Based on the auditor switching samples of 2006 to 2013, this article aims at explaining how the characters of controlling shareholders, operators and managers and board of directors influence the auditor switching decision in the corporate internal governance arrangement. We tend to examine the auditor switching from the perspective of internal governance environment, thus enriching the relevant research results; meanwhile, seeking empirical evidences on how to perfect and improve internal governance mechanism balance from the angle of audit system arrangement. Using logistic regression and OLS regression methods, we discovered that:the board of directors plays the most important role in the auditor switching decision, which proved that the board of directors in our country showed correction and supervision effects'in internal governance; controlling shareholder can influence auditor appointment decision by its political relationship, but its voice is limited in the decision; management characteristics have little impact on auditor appointment decision. Listed companies switching to auditor with lower reputation significantly leads to the decrease of the accounting information quality in the current switching year, which verified one of the purposes of switching to lower reputation auditors is to purchase audit opinion.