Investor protection and audit fees: evidence from the E-interaction platform in China

Yurou Liu

Accounting and Business Research, 2022, vol. 52, issue 7, 815-837

Abstract: This paper investigates the impact of investor protection on audit fees using a quasi-natural experiment provided by the introduction of the E-interaction platform in China. E-interaction provided investors with a platform to communicate directly with listed companies and participate in discussions of corporate matters, thereby enhancing the rights and interests of small and medium-sized investors, i.e. investor protection. Employing a difference-in-differences design, I find that, firms listed on the Shanghai Stock Exchange experienced a large reduction in audit fees after the adoption of E-interaction. The results are robust to changes in event windows and alternative research designs. Further analyses demonstrate that the reduction in audit fees was greater for firms with a higher level of expropriation of minority shareholders, i.e. tunnelling. I also find that controlling shareholders’ tunneling behaviours decreased after the introduction of E-interaction. Taken together, my results suggest that increased investor protection reduces audit fees by mitigating agency conflicts between the controlling shareholder and minority shareholders.

Date: 2022
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DOI: 10.1080/00014788.2021.1938961

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