Managerial Ownership, Corporate Monitoring and Audit Fee
University of Texas at El Paso (UTEP)
Korea University Business School
Julia L. Higgs
Florida Atlantic University - School of Accounting
McMaster University - DeGroote School of Business
January 12, 2011
We study whether managerial ownership and analyst coverage relate to audit fee. To the extent that these corporate governance factors relate to auditor assessment of the firm’s agency costs and hence various risks the auditor must consider in the development of an audit program, they will affect audit effort and hence audit fee. We find that managerial equity holdings and analyst coverage are negatively associated with audit fee and that these associations are both statistically and economically significant. On average, one percent increase in managerial ownership translates into 0.2% reduction in audit fees. In the low managerial ownership sample (i.e., less than 5% managerial ownership), one percent increase in the ownership reduces the fees by 1.4%. Similarly, one more analysts following reduces audit fees by 9.3%. These results add to the literature on the effects of corporate governance on audit fees.
Number of Pages in PDF File: 37
Keywords: audit fees, audit pricing, corporate governance
JEL Classification: M42, G34
Date posted: January 18, 2011
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