Do Corporate Governance Measures Impact Audit Pricing of Smaller Firms? Evidence from the United States and New Zealand

The International Journal of Business and Finance Research, v. 12 (2) p. 77-94, 2018

18 Pages Posted: 28 Feb 2019

Date Written: 2018

Abstract

Motivated primarily by the claims that audit committee independence and accounting expertise and CEO compensation influence audit fees, this study examines the effect of such factors, on audit fees in two different institutional settings in the post-Sarbanes Oxley Act (SOX) era. The institutional settings are those of the U.S. and New Zealand audit markets, where the U.S. market is more regulated and litigious than the New Zealand market. The study sample comprises firms of similar size from each country. Firms in the U.S. with higher audit committee accounting expertise charge higher audit fees than New Zealand firms. The results also suggest that short-term incentives and total compensation in both the countries are considered as audit risk and priced accordingly even though N.Z. firms operate in a different regulatory environment. Study findings suggest that firms with better corporate governance arrangements in the post-SOX era in the U.S. demand a better audit effort from audit firms and pay higher audit fees.

Keywords: New Zealand, Audit Fees, SOX, IFRS

JEL Classification: M42, M48, M49

Suggested Citation

Ananthanarayanan, Umapathy, Do Corporate Governance Measures Impact Audit Pricing of Smaller Firms? Evidence from the United States and New Zealand (2018). The International Journal of Business and Finance Research, v. 12 (2) p. 77-94, 2018. Available at SSRN: https://ssrn.com/abstract=3241731

Umapathy Ananthanarayanan (Contact Author)

New York Institute of Technology ( email )

Kingdom of Bahrain
New York, NY 10023
United States

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