The Effect of Nonaudit Fees and Family Owned Businesses on Earnings Management in the Indian Industry

21 Pages Posted: 13 Mar 2012 Last revised: 10 Apr 2014

See all articles by Renu Desai

Renu Desai

Florida International University

Vikram Desai

Nova Southeastern University

Vishal Munsif

California State University, San Bernardino

Meghna Singhvi

Loyola Marymount University - Department of Accounting

Date Written: March 12, 2012

Abstract

This paper extends the findings of Frankel, Johnson, and Nelson (2002) by providing empirical evidence on the relation between nonaudit fees and earnings management for a sample of Indian firms. In addition, we investigate whether there is a greater incidence of earnings management in family owned firms versus non family owned firms. Our tests are motivated by concerns about decreasing auditor independence due to a greater economic bond between the firm and the auditor in the presence of nonaudit fees. These concerns are reflected by the SEC, who issued auditor independence rules in November 2000 that required firms to file proxy statements on or after February 5, 2001 that disclose the amount of total audit fees paid along with a breakdown between audit fees and nonaudit fees. We find a positive association between nonaudit fees and the magnitude of absolute discretionary accruals. We also find a positive association between family owned firms and the magnitude of discretionary accruals.

Keywords: nonaudit fees, family business, earnings management, India

JEL Classification: K22, L5, M4, O53

Suggested Citation

Desai, Renu and Desai, Vikram and Munsif, Vishal and Singhvi, Meghna, The Effect of Nonaudit Fees and Family Owned Businesses on Earnings Management in the Indian Industry (March 12, 2012). Available at SSRN: https://ssrn.com/abstract=2020267 or http://dx.doi.org/10.2139/ssrn.2020267

Renu Desai (Contact Author)

Florida International University ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Vikram Desai

Nova Southeastern University ( email )

Vishal Munsif

California State University, San Bernardino ( email )

5500 University Parkway
San Bernardino, CA 92407
United States

Meghna Singhvi

Loyola Marymount University - Department of Accounting ( email )

One LMU Dr.
Hilton 317
Los Angeles, CA 90045
United States

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