Financial Flexibility and Audit Fees Evidence from Chinese Listed Companies

Maximizing enterprise value is considered as the primary purpose of financial flexibility. The financial flexibility of the audited entity affects the audit fees by affecting the business risk of the enterprise. In this research, the data of Chinese listed companies in Shanghai and Shenzhen stock exchanges from 2003 to 2020 have been adopted to empirically analyze that the higher the level of financial flexibility of a firm would lower its audit fees. We investigate whether financial flexibility reduces business risk by enhancing the ability of enterprises to manage resources flexibly in the face of uncertainty. The results show that the financial flexibility of the audited entity is negatively correlated with the audit fees. This research not only enriches the related literature on economic consequences of financial flexibility and the influencing factors of audit fees, but also contributes positively to improving the awareness of financial flexibility and the efficiency of financial resource allocation in enterprises. It is also of reference value for the improvement of the current audit fee system.