Cash Holdings and Their Impact on Audit Fees

51 Pages Posted: 27 Jan 2016

See all articles by Samuel Benjamin

Samuel Benjamin

University of Otago

Jayalakshmy Ramachandran

University of Nottingham - University of Nottingham, Malaysia Campus

Srikamaladevi Marathamuthu

Multimedia University (MMU)

Zul Mohamed

Universiti Tun Abdul Razak (UNIRAZAK)

Date Written: November 12, 2015

Abstract

In this paper, we examine how auditors respond in terms of audit fees, to cash holdings that are a growing concern in corporate America. Holding everything else constant, we find that cash holdings are positively related to audit fees, reflecting that auditors’ react to the level of firms’ cash holdings, which is a source of agency costs. Additionally, our results indicate that cash holdings in firms with low growth opportunities induce auditors to raise audit fees. We also find that the audit fees-cash holdings relationship differs (1) between firms that are financially constrained and unconstrained and (2) between firms with high hedging and low hedging needs. In addition, we assess how corporate governance quality influences audit fee sensitivity to cash holdings under varying dimensions of growth opportunities, financial constraints and hedging needs and we find evidence that, on average, cash holdings in the presence of higher/lower shareholders’ rights lead to higher/lower audit fees.

Keywords: audit fees; cash holdings; growth opportunities; financial constraints; hedging needs; corporate governance

JEL Classification: M41, G3

Suggested Citation

Benjamin, Samuel and Ramachandran, Jayalakshmy and Marathamuthu, M. Srikamaladevi and Mohamed, Zulkifflee Mohamed, Cash Holdings and Their Impact on Audit Fees (November 12, 2015). Available at SSRN: https://ssrn.com/abstract=2723236 or http://dx.doi.org/10.2139/ssrn.2723236

Samuel Benjamin (Contact Author)

University of Otago ( email )

Commerce
Clyde Street
Dunedin, OR Otago 9016
New Zealand

Jayalakshmy Ramachandran

University of Nottingham - University of Nottingham, Malaysia Campus ( email )

Jalan Broga
Selangor Darul Ehsan, Semenyih 43500
Malaysia

M. Srikamaladevi Marathamuthu

Multimedia University (MMU) ( email )

Jalan Multimedia
Cyberjaya, Selangor 63100
Malaysia
+603-83125780 (Phone)

Zulkifflee Mohamed Mohamed

Universiti Tun Abdul Razak (UNIRAZAK) ( email )

Capital Square, Block C & D
No. 8
Jalan Munshi Abdullah, Kuala Lumpur 50100
Malaysia

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