The Phenomenon of “High Deposits and Loans” and Audit Quality of Listed Companies

Abstract

Abstract: The highly controversial audit quality of listed companies in China is highlighted in recent years by one after another defaulted company with high deposits and loans. This paper makes an empirical analysis of Shanghai and Shenzhen A-share listed companies from 2007 to 2018, and systematically verifies the low-level audit quality problems existing in the companies with high deposits and loans, highlighting the potential dangers of this financial anomaly. Further analysis also explores the mitigation mechanism from the internal governance mechanism and external governance channels of the companies. This paper also explores the path of “high deposits and loans” affecting audit quality. The research results show that improving the size and independence of the audit committee can effectively improve the audit quality of the companies with high deposits and loans, and the greater the short selling pressure faced by the companies and the higher the media attention can also significantly improve the audit quality of the companies with high deposits and loans. At the same time, “high deposits and loans” affects audit quality through audit collusion.

Key words: high deposits and loans, audit quality, mitigation mechanism

Dou Chao, Yuan Yanan, Yang Xue, Luo Yanxin. The Phenomenon of “High Deposits and Loans” and Audit Quality of Listed Companies[J]. Management Review, 2025, 37(10): 185-196.

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