Leverage Increase Of Controlling Shareholders And Audit Pricing

In recent years,China’s capital market continues to develop and mature,and leveraged overweight has become a common financing behavior.Because of its advantages of low cost and rapid financing,leveraged overweight has gradually become one of the important financing methods of listed companies.However,while increasing leverage helps enterprises to finance funds,it also makes enterprises face huge financial crisis and the risk of control transfer.With the rise of leverage holdings,the "explosion" event of the first largest shareholder’s asset management plan followed,and the economic consequences of leverage holdings of controlling shareholders gradually attracted the attention of theoretical and practical circles.As users of information,the auditor’s decision-making behavior is also influenced by the company’s leverage overweight behavior.According to the literature on leverage holdings,some scholars believe that leverage holdings of controlling shareholders can effectively alleviate the enterprise conflicts between major shareholders and minority shareholders,and encourage controlling shareholders to play a "benefit synergy effect" in corporate governance.However,the risks brought by leverage increase to the company can not be ignored.Therefore,it is worth exploring what impact the controlling shareholder’s leverage increase behavior will have on audit pricing.This paper takes China’s A-share listed companies as samples,uses the data from 2015 to 2020,and based on signal transmission theory,principal-agent theory,audit cost-benefit theory and audit risk premium theory,tests the relationship and internal mechanism between controlling shareholders’ leverage increase and audit pricing,and further analyzes the heterogeneity of this influence from the perspectives of enterprise characteristics,legal environment and internal governance.The test results are as follows:(1)The controlling shareholder’s leverage increase is positively correlated with audit pricing,and this conclusion is still valid after the robustness tests such as Heckman’s two-stage test,substitution variables and sample change period,which indicates that the controlling shareholder’s leverage increase will significantly improve audit pricing;(2)After exploring its mechanism of action,it is found that the controlling shareholder’s leverage increase can promote audit pricing mainly by increasing the auditor’s risk premium and the auditor’s efforts;(3)The moderating effect after further distinguishing different enterprise characteristics,legal environment and corporate governance level shows that when the enterprise has the pledge of controlling shareholders’ equity and the legal environment is strict,the controlling shareholders’ leverage increase has a stronger effect on audit pricing,while better information disclosure quality and higher equity balance will weaken the positive correlation between the controlling shareholders’ leverage increase and audit pricing.(4)At the same time,the risk effect brought by the leverage increase of controlling shareholders will also inhibit auditors from issuing standard audit opinions,and will damage the audit quality.The main contributions of this thesis are as follows: First,it has enriched the relevant literature on the economic consequences of leverage increase behavior of controlling shareholders in China.Most of the existing researches have focused on the nature of controlling shareholders’ control rights(Tang Yuejun,Zuo Jingjing,2014),the proportion of controlling shareholders’ shares(Ning Qingqing et al.,2018),the pledge of controlling shareholders’ shares(Changqing Li et al.,2018),etc.,but little attention has been paid to the economic consequences of controlling shareholders’ leverage increase,and most of them are based on the impact on the internal business decisions of enterprises.However,this thesis is based on accounting firms to study the impact of leverage increase on audit pricing.Secondly,it expands the research results of influencing factors of audit pricing.In the past,academic circles paid attention to the influencing factors of audit pricing,mostly focusing on the characteristics of enterprises and the individual characteristics of auditors(Simunic,1980;Beck and Mauldin,2014),but less attention is paid to the influence of financial behavior of controlling shareholders.Based on the transmission mechanism of audit risk,this thesis analyzes and verifies the mechanism,ways and influencing factors of controlling shareholders’ leverage increase affecting audit fees from the new perspective of leverage increase,and broadens the related research in the field of audit pricing.Thirdly,the research conclusion of this thesis has certain reference significance for listed companies and regulatory authorities.For listed companies,because of the controlling shareholder’s leverage increase behavior,listed companies need to bear more costs when being audited(the audit fees increase or more non-standard unqualified audit opinions are received).Therefore,listed companies need to negotiate with the controlling shareholder in time to reduce the "trouble" caused by the leverage increase.For the regulatory authorities,the risk of leverage increase can be controlled by the power of market intermediary organizations,for example,the level of auditors’ fees and the types of audit opinions issued to judge the risk of leverage increase,so as to formulate an appropriate degree of control.