Are Financial Excesses Listed Companies Generous in the Audit Fees: Empirical Evidence from China?

Abstract

The financial condition of "no actual borrowing" is more obvious in Japanese companies, while in China "no actual borrowing" is further extended and interpreted as "Financial excesses". According to the research findings, the phenomenon of financial excesses is also common in Chinese listed companies. The impact of financial excesses enterprises on audit decision-making is still unclear. This article takes the Shanghai and Shenzhen A-shares from 2010 to 2019 as a sample of financially excesses companies for 10 consecutive years. We use Logit and OLS model to test the hypothesis. Will financial excesses listed companies give priority to the "big four" in the selection of accounting firms? Will financial excesses listed companies be generous in the audit fees? The conclusions of this paper are as follows:financial excesses is negatively correlated with the choice of accounting firms. The higher the financial excesses, the more likely the firms are to choose the non-big4 accounting firms. Financial excesses is negatively correlated with the annual audit fee of the enterprise. The higher the financial excesses, the lower the annual audit fee of the enterprise. Our findings have important practical significance and academic value for understanding the relationship between financial excesses and audit decision-making.