Impacts of the China Securities Investor Services Center's Shareholding Exercise on Audit Fees

Abstract

Protecting the legitimate rights and interests of small and medium investors is the basis of the sustainable and healthy development of the capital market. The shareholding exercise pilot policy of China Securities Investor Services Center is a major innovation in the protection mechanism of investors' rights and interests. Taking A-share listed companies from 2013 to 2017 as the sample, this paper constructs a difference-in-difference model (DID) to test the impacts of Investor Services Center's shareholding exercise on audit fees of listed companies. The study finds that the Investor Services Center's shareholding exercise significantly reduces the audit fees. The mechanism test results show that Investor Services Center's shareholding exercise can reduce the audit fees by restraining the level of accrued earnings management and agency costs. Further analyses show that the effect of reducing audit fees by Investor Services Center's shareholding exercise is more obvious in larger enterprises with lower proportion of independent directors. This paper enriches the research related to the protection of small and medium-sized investors, clarifies the impact mechanism of investor protection on audit fees, expands the relevant research on the influencing factors of audit fees, and provides theoretical support and suggestions for the relevant policy formulation of the China Securities Investor Services Center.