Managerial Ownership, Corporate Monitoring and Audit Fee

37 Pages Posted: 18 Jan 2011  

Giorgio Gotti

University of Texas at El Paso (UTEP)

Sam Han

Korea University Business School

Julia L. Higgs

Florida Atlantic University - School of Accounting

Tony Kang

McMaster University - DeGroote School of Business

Date Written: January 12, 2011

Abstract

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.

Keywords: audit fees, audit pricing, corporate governance

JEL Classification: M42, G34

Suggested Citation

Gotti, Giorgio and Han, Sam and Higgs, Julia L. and Kang, Tony, Managerial Ownership, Corporate Monitoring and Audit Fee (January 12, 2011). Available at SSRN: https://ssrn.com/abstract=1406648 or http://dx.doi.org/10.2139/ssrn.1406648

Giorgio Gotti

University of Texas at El Paso (UTEP) ( email )

500 West University Avenue
El Paso, TX 79968-0542
United States

Sam Han

Korea University Business School ( email )

Anam-Dong 5 Ga, Seongbuk-Gu
Seoul, 136-701
Korea, Republic of (South Korea)
+82-2-3290-2839 (Phone)

Julia L. Higgs

Florida Atlantic University - School of Accounting ( email )

University Tower
220 SE 2 Avenue
Fort Lauderdale, FL 33301
United States

Tony Kang (Contact Author)

McMaster University - DeGroote School of Business ( email )

1280 Main Street West
Hamilton, ON L8S 4M4
Canada
905-525-9140 x23846 (Phone)
905-521-8995 (Fax)

HOME PAGE: http://www.degroote.mcmaster.ca/profiles/tony-kang/

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