REIT Auditor Fees and Financial Market Transparency

43 Pages Posted: 13 Oct 2009

See all articles by Bartley R. Danielsen

Bartley R. Danielsen

North Carolina State University - Poole College of Management

David M. Harrison

UCF; Texas Tech University

Robert A. Van Ness

University of Mississippi - Department of Finance

Richard S. Warr

North Carolina State University

Abstract

This article examines the relationship between overinvestment in audit services, abnormal nonaudit fees paid to the auditor and market-based measures of firm transparency. Because real estate investment trusts (REITs) must distribute 90% of their earnings as dividends, many are repeat participants in the seasoned equity market. Thus, REITs have unusually strong incentives to strive for security market transparency. We find that the capital markets reward REITs that overinvest in audit services with better liquidity as measured by bid-ask spreads. However, firms with abnormally high nonaudit expenditures appear to be penalized with wider spreads, consistent with the notion that such fees may compromise auditor independence.

Suggested Citation

Danielsen, Bartley R. and Harrison, David M. and Van Ness, Robert A. and Warr, Richard S., REIT Auditor Fees and Financial Market Transparency. Real Estate Economics, Vol. 37, No. 3, pp. 515-557, Fall 2009. Available at SSRN: https://ssrn.com/abstract=1487847 or http://dx.doi.org/10.1111/j.1540-6229.2009.00250.x

Bartley R. Danielsen (Contact Author)

North Carolina State University - Poole College of Management ( email )

Hillsborough Street
Raleigh, NC 27695-8614
United States
919-513-3003 (Phone)

David M. Harrison

UCF ( email )

Orlando, FL 32816-1400
United States
407-823-1127 (Phone)

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

Robert A. Van Ness

University of Mississippi - Department of Finance ( email )

Oxford, MS 38677
United States

Richard S. Warr

North Carolina State University ( email )

BOX 7229
Raleigh, NC 27695-7229
United States
919-513-4646 (Phone)
919-515-6943 (Fax)

HOME PAGE: http://www4.ncsu.edu/~rswarr/

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