Abstract: Taking China’s A-share listed companies that changed their auditors during 2007-2012 as the samples, this paper conducts an empirical test on the relationship between corporate managerial power and dynamic auditor choice as well as the effects of external audit on management agency costs. The results indicate that, when choosing auditors dynamically, the greater the managerial power, the more likely to choose high-qualify external auditor by the corporate management with stockholders’ meeting and board of directors as its representative, so as to inhibit power expansion and rent-seeking behaviors of company management. Further study indicates that to choose high-qualify auditors can reduce the management agency cost by way of alleviating agency conflicts between the owners and the management to some extent.

Key words: high-qualify auditing; dynamic auditor choice; managerial power; agency costs