Abstract: Taking China’s A-share listed companies during 2003-2011 as samples, this paper examines the governance effects of quality audit on the agency problem of the high investment opportunity set companies and the paths from the perspective of overinvestment. The study finds out that the companies of the high investment opportunity set generally tend to over investment; with the increase of investment opportunity set, the high-quality accounting information can significantly alleviate the problem of excessive investment triggered by the high investment opportunity set. Finally, if a company hires a high quality auditor, the accounting information will be able to alleviate more significantly the over-investment behaviors caused by the high investment opportunity set, which indicates that by improving the quality of accounting information, high quality audit can relieve the over-investment problem more effectively. Furthermore, the additional tests show that the governance efficiency of high quality audit on the overinvestment by the high investment opportunity set companies is only significant in the companies with lower debt levels, which indicates that there exists a substitution effect between debt management mechanism and high quality audit to some extent.

Key words: investment opportunity set; the quality of accounting information; quality audits; overinvestment