Abstract：To understand the economic role played by independent auditing in China's transition economy and evaluate the performance of independent auditing system , it is important to investigate the demand for audit services as well as the evolution of the system . Based on the marketization reform of Initial Public Offering (IPO) in China , this paper examines the issue empirically from both the information demand and the monitoring demand perspectives . We find that ,on the one hand , the demand for high-quality auditing increases with the progress of IPO marketization reform .IPOfirms with lower uncertainty risk are more likely to select high-quality auditors after the implementation of authorization system . On the other hand , although the governance conflicts between managersandshareholderscreate the demand for high-qualityauditing ,the inadequacy of effective market constraint mechanisms results in governance conflicts between controlling and minority shareholders and reduces the demand for high-quality auditing . The″a bsentee owner″problem for the statecontrolling shareholdersfurther weakens such ademand .Our findings suggest that the demand for high-quality auditing in China's capital market is not likely to increase unless the governance problemassociated with controlling shareholders is addressed .
