Ownership Structure and the Demand for Auditor Quality

37 Pages Posted: 21 Nov 2017 Last revised: 21 Jul 2018

See all articles by Curtis M. Hall

Curtis M. Hall

Drexel University - Bennett S. LeBow College of Business

Benjamin W. Hoffman

Kent State University

Zenghui Liu

Western Washington University - Accounting

Date Written: May 29, 2018

Abstract

We examine the effect of ownership structure on the demand for high quality auditors. Prior literature indicates that the demand functions for auditors may be different in private companies than in public companies due, in part, to more significant agency costs for public companies. Using data from publicly traded and privately owned banks of comparable size, we find that private banks are less likely to hire industry expert auditors than public banks, but are just as likely to hire non-expert Big 4 auditors. We also find that both private and public banks pay higher audit fees for Big 4 auditors, but public banks pay a premium for industry experts while private banks pay lower fees. Overall, our study provides further evidence that differences in agency costs between public and private companies impacts the demand for auditors. Our findings suggest that auditor demand in public banks may be driven by audit quality, while the auditor demand in private banks is driven by price competition.

Keywords: ownership structure, auditor quality, auditor choice, audit fees, banking

Suggested Citation

Hall, Curtis M. and Hoffman, Benjamin W. and Liu, Zenghui, Ownership Structure and the Demand for Auditor Quality (May 29, 2018). Available at SSRN: https://ssrn.com/abstract=3072734 or http://dx.doi.org/10.2139/ssrn.3072734

Curtis M. Hall

Drexel University - Bennett S. LeBow College of Business ( email )

Philadelphia, PA 19104
United States

Benjamin W. Hoffman (Contact Author)

Kent State University ( email )

P.O. Box 5190
Kent, OH 44242-0001
United States
330-672-1120 (Phone)

Zenghui Liu

Western Washington University - Accounting ( email )

United States

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