Does financial asset allocation term structure affect audit fees? Evidence from China.

Area of Science:

• Corporate Finance
• Auditing and Accounting
• Financial Economics

Background:

• The increasing financialization of real enterprises poses challenges for China's economic development.
• Understanding the determinants of audit fees is crucial for corporate governance and financial reporting.
• The structure of financial asset allocation may influence audit engagement complexities and costs.

Purpose of the Study:

• To investigate the impact of financial asset allocation term structure on audit fees in Chinese listed firms.
• To examine the mediating role of financial risk in the relationship between financial assets and audit fees.
• To explore the moderating effects of independent director characteristics on this relationship.

Main Methods:

• Empirical analysis using a sample of Chinese A-share listed companies from 2009 to 2019.
• Regression analysis to assess the impact of long-term and short-term financial assets on audit fees.
• Mediation and moderation analyses to incorporate financial risk and independent director attributes.

Main Results:

• A positive association was found between higher allocations to long-term financial assets and increased audit fees.
• Short-term financial assets showed no significant correlation with audit fees.
• Financial risk significantly mediates the link between long-term financial assets and audit fees.

Conclusions:

• The term structure of financial asset allocation, particularly long-term investments, is a significant factor influencing audit fees.
• Independent director characteristics, such as gender, financial expertise, overseas experience, and academic background, play a moderating role.
• Findings enhance understanding of financial asset allocation drivers, audit fee determinants, and corporate governance mechanisms in China.