Allocation Of Enterprise Legal Representatives And Audit Fees

With the revision of the provisions on legal representative in the Company Law in 2022,the enterprise legal representative institution has attracted more attention from all walks of life.Globally,the legal representative institution is implemented in Germany,Japan,Indonesia and Taiwan,China.Unlike the laws in Chinese mainland,most of the legal representatives can only be the chairman of the board of directors,not the general manager.The concept of legal representative in Chinese law first appeared in 1979.It was initially the same as the foreign legal representative provisions,which stipulated that the legal representative could only be the chairman of the company.However,for the purpose of improving the scope of internal autonomy of legal persons and increasing the flexibility of the allocation of legal representatives,the Company Law was revised in 2005.Article 13 clearly stipulates that the legal representative of the company shall be the chairman,executive director or manager in accordance with the provisions of the articles of association and has continued to the present.The Company Law revised in2022 further clarifies the issue of the legal representative’s representation,It is stipulated that the legal representative shall engage in civil activities in the name of the company,and its legal liability shall be borne by the company.This provides the general manager as the legal representative with job requirements,power basis and legal protection,makes it possible for the general manager to influence the board of directors and thus shareholders’ interests,and also forms the institution basis for influencing the general manager as the legal representative and affecting the auditor’s risk assessment of material misstatement.Although this provision improves the flexibility of the allocation of legal representatives,and may form incentives for the general manager to some extent,it will lead to conflicts between the internal decisionmaking right of the board of directors and the external representation right,and even in the process of daily business activities,the general manager may act as the legal representative beyond the scope of the shareholders’ meeting or the board of directors’ authorization and act with the counterpart,forming an apparent agency,which may damage the interests of shareholders,So as to intensify the agency conflict within the enterprise.In addition,in the field of academic research,the legal representative institution has always been the focus of discussion and dispute at the legal level,but there is little discussion on the economic consequences of the allocation of legal representatives.In a small number of studies on the economic consequences of the allocation of legal representatives,the chairman of the board of directors is also the main legal representative,and few studies discuss the economic consequences from the perspective of the general manager as the legal representative.From the perspective of audit fees,this paper believes that on the one hand,the appointment of the general manager as the legal representative may increase the power of the general manager,increase the agency conflict between the general manager and the board of directors,increase the risks faced by auditors,and further lead to an increase in audit fees;On the other hand,it may be one of the means to encourage the general manager to internalize the risk,so as to regulate the agency activities of the general manager,thereby reducing the risks faced by auditors,and further leading to the reduction of audit fees.To sum up,this paper believes that there is a certain correlation between the allocation of legal representatives and audit fees.The discussion of this issue will help to better understand the economic consequences of the allocation of legal representatives,and thus provide a basic paradigm for subsequent problem analysis.In the empirical test part,this thesis manually collected the data on the allocation of legal representatives of listed companies from 2006 to 2020.Based on the perspective of the general manager as the legal representative,this thesis empirically tested the impact of the allocation of the general manager as the legal representative on audit fees.The empirical test results show that the general manager as the legal representative will lead to an increase in audit fees.Through mechanism analysis,it is found that the general manager as the legal representative will lead to operating risk,improve the auditor’s perception of audit risk,and promote the auditor to increase resource input,which will lead to an increase in audit costs.Heterogeneity analysis shows that auditor industry expertise and good internal control can significantly reduce the strength of the relationship between the allocation of legal representatives and audit fees.Further analysis shows that,in order to avoid risks,auditors are more inclined to issue nonstandard audit opinions on listed companies with the general manager as the legal representative.The above conclusions provide empirical evidence to further clarify the consequences of the allocation of corporate legal representatives,and also provide important reference for regulators to further improve the supporting measures for the allocation of general managers as legal representatives.In order to explore the relationship between the allocation of corporate legal representatives and audit fees,this thesis mainly involves the following six parts.The first part is the introduction,which includes the research background and significance,research ideas and methods,research content and framework,and research innovation points.It briefly introduces the research content,ideas and methods of this thesis,constructs the basic research framework of this thesis,and explains the possible innovation of this thesis.The second part is literature review.This part combs,analyzes and summarizes the relevant literature on the allocation of corporate legal representatives and audit fees,and combs the research status related to both,providing a literature basis for this study.The third part is the background and theoretical overview of the legal representative allocation institution.It briefly discusses the institutional background of the legal representative and the basic theories involved in this study,mainly involving four basic theories: principalagent theory,modern housekeeper theory,management power theory and risk control theory.The fourth part is the theoretical analysis and hypothesis.This part mainly uses the literature and theoretical basis provided in the second and third parts to fully use the theoretical analysis methods to sort out the relationship between the allocation of corporate legal representatives and audit fees,and puts forward a pair of competitive hypotheses: the general manager serving as the legal representative will increase the company’s audit fees,or the general manager serving as the legal representative will reduce the company’s audit fees;In addition,this part introduces the research samples,relevant data sources and the processing methods of this thesis,proposes and explains the model constructed in the process of empirical testing,and describes the definitions and measurement methods of explanatory variables,explained variables and a series of control variables in the model.The fifth part is the process and results of the empirical test of the allocation of legal representatives to audit fees.This part discusses the relationship between the general manager acting as the legal representative and the company’s audit fees,as well as the transmission path,and also makes a heterogeneity analysis and further analysis.Finally,the robustness of the main regression results is tested to ensure the reliability of the research conclusions.The sixth part is the conclusion,policy recommendations and reflection.This part summarizes the research conclusions obtained in this thesis,and puts forward corresponding policy recommendations from the perspective of different subjects.At the same time,it also puts forward the limitations of research methods and ideas in the thesis and the future research directions at the end.