Votes Against Auditor Ratification and Audit Pricing – Evidence from a Mandatory and Binding Ratification Setting

45 Pages Posted: 28 Sep 2017 Last revised: 20 Dec 2019

See all articles by Matthias Baumann

Matthias Baumann

University of Hamburg

Nicole V.S. Ratzinger-Sakel

University of Hamburg

Christoph Teucher

University of Hamburg

Date Written: September 26, 2017

Abstract

This paper empirically examines the impact of shareholder ratification of auditors (SRA) voting results on audit fees in a mandatory and binding ratification setting (i.e., Germany). Motivation for our study comes from the widespread implementation of SRA in Europe. Furthermore, it addresses calls for research by US scholars on the effect of mandatory SRA voting results and on SRA outside the US. We find that audit fees are approximately 11 percent higher following an economically significant magnitude of negative votes on auditor ratification. However, we do not find evidence that significant shareholder disapproval is associated with higher audit quality. We therefore conclude that auditors, rather than engaging in audit quality enhancing measures, respond to large shareholder disapproval by focusing on risk and pricing related strategies that drive audit fees. Our study is, to the best of our knowledge, the first to examine the impact of SRA voting results on auditor behavior.

Keywords: mandatory shareholder ratification of auditors; audit fees; audit quality; audit regulation

JEL Classification: M4; M42; M48; G3; G39

Suggested Citation

Baumann, Matthias and Ratzinger-Sakel, Nicole V.S. and Teucher, Christoph, Votes Against Auditor Ratification and Audit Pricing – Evidence from a Mandatory and Binding Ratification Setting (September 26, 2017). Available at SSRN: https://ssrn.com/abstract=3043340 or http://dx.doi.org/10.2139/ssrn.3043340

Matthias Baumann (Contact Author)

University of Hamburg

Moorweidenstrasse 18
Hamburg, 20148
Germany

Nicole V.S. Ratzinger-Sakel

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

Christoph Teucher

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

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