Interdependencies between Auditing and Corporate Governance – Evidence from Germany
Schmalenbach Business Review, Vol. 65, July 2013, pp.198-226
29 Pages Posted: 15 Oct 2013
Date Written: 2013
We study the empirical relation between audit fees and governance mechanisms in Germany. Using data from German listed companies, we examine the German governance setting with its two-tier board system. Various model specifications control for potential endogeneity of the governance variables. We identify two major findings. First, we find that performance-based management remuneration has a significant positive impact on audit fees. This effect suggests that increased audit risk due to enhanced incentives for earnings management is reflected in higher audit fees. Second, we find a complementary relation between audit fees and the formation of an audit committee. The results regarding further board characteristics are ambiguous.
Keywords: Audit Fees, Corporate Governance, Management Compensation, Two-Tier
JEL Classification: M42
Suggested Citation: Suggested Citation