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

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  • Yurou Liu

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.

Suggested Citation

  • Yurou Liu, 2022. "Investor protection and audit fees: evidence from the E-interaction platform in China," Accounting and Business Research, Taylor & Francis Journals, vol. 52(7), pages 815-837, November.
  • Handle: RePEc:taf:acctbr:v:52:y:2022:i:7:p:815-837
    DOI: 10.1080/00014788.2021.1938961
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    Cited by:

    1. Zhao, Yujie & Yao, Zhanghao & Li, Yuanqin & Zhou, Ping, 2023. "Can high-quality interactions lower the cost of debt? Insights from interactive investor platforms," Finance Research Letters, Elsevier, vol. 58(PC).

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