The Relationship between Governance Structure and Audit Fees Pre-Cadbury: Some Empirical Findings

Posted: 26 Jan 2001

See all articles by Michael J. Peel

Michael J. Peel

Cardiff University - Cardiff Business School

Mark Clatworthy

University of Bristol, Department of Accounting and Finance

Abstract

In this paper we provide new evidence on the relationship between internal governance structures (board composition and ownership concentration) and audit fees of UK industrial quoted companies, before the recommendations of the Cadbury Committee were implemented. We also develop a new hypothesis derived from agency theory, in an attempt to explain the puzzling positive relationship between audit and non-audit fees. In common with post-Cadbury research, we find no significant evidence that board structure variables, including chairman/chief executive officer split and the proportion of non-executive directors on the board, impact significantly on external audit fees. Also, while prior research has shown that the aggregated level of institutional and managerial ownership are negatively associated with audit fees, we find that only one constituent of this variable, namely directors' ownership, has a significant impact.

Keywords: Audit fees; Board composition; Non-audit fees; Ownership concentration

JEL Classification: M49, G34, G32

Suggested Citation

Peel, Michael J. and Clatworthy, Mark A., The Relationship between Governance Structure and Audit Fees Pre-Cadbury: Some Empirical Findings. Available at SSRN: https://ssrn.com/abstract=253765

Michael J. Peel (Contact Author)

Cardiff University - Cardiff Business School ( email )

Cardiff
United Kingdom

Mark A. Clatworthy

University of Bristol, Department of Accounting and Finance ( email )

School of Economics, Finance and Management
8 Woodland Road
Bristol, BS8 1TN
United Kingdom
+44(0)1173310914 (Phone)

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