Abstract
This paper studies the impact of entity enterprises financialization on audit fees and its internal mechanisms. We use the data of China’s Shenzhen A-share listed companies from 2013 to 2018 to conduct empirical research. It is found that the higher the degree of financialization of the entity enterpeises, the higher the audit cost of the enterprise. The internal mechanism is that the level of the non-financial financialization is rising, leading to the reduction of information transparency of enterprises, which increases the audit risk faced by certified public accountants, so as to raise audit fees for risk compensation and self-protection. This paper provides a new perspective for understanding the financialization of entity enterprises, enriching the research results on financialization and audit fees of entity enterprises. The relevant conclusions have certain reference value for listed companies and regulatory authorities.
Highlights
The trend of financialization of entity enterprises is a major feature of China's current economy
This paper attempts to explore (1) the impact of financialization of entity enterprises on audit fees. (2) what is the effect mechanism of financialization of entity enterprises on audit fees? Based on the data of a-share listed companies in Shenzhen from 2013 to 2018, we found that financialization of entity enterprises would significantly increase audit fees
As shown in column (1), financialization of entity enterprises significantly reduces the information transparency of entity enterprises, while it can be seen from column (2) that the reduction of information transparency increases the audit fees of entity enterprises, which verifies the hypothesis H2
Summary
The trend of financialization of entity enterprises is a major feature of China's current economy. There is a lack of further research on whether financialization of entity enterprises will affect audit fees and their internal mechanism. The lower the information transparency is, the more unfavorable it is for investors to have a comprehensive and objective understanding of the company's real performance, which significantly increases the audit risk assessed by certified public accountants [8],[1]. Based on the data of a-share listed companies in Shenzhen from 2013 to 2018, we found that financialization of entity enterprises would significantly increase audit fees. The internal mechanism is that the financialization of the non-financial enterprise reduces the information transparency of the company, increasing the audit risk of certified public accountants, and increasing the audit fees. Part is the data and research design; The fourth part is the conclusion and suggestions
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