Quasi-indexer Ownership and Auditor Independence: Evidence from Non-audit Service Fees

Posted: 18 Nov 2019

See all articles by Jing Fang

Jing Fang

Hong Kong Polytechnic University

Date Written: November 7, 2019

Abstract

We find that quasi-indexer ownership is negatively associated with the ratio of non-audit service fees to total fees paid to the audit firm performing the audit service and with the likelihood of paying the audit firm more non-audit service fees than audit service fees. Using the annual Russell 1000/2000 index reconstitution as plausibly exogenous variation in quasi-indexer ownership, we show that the dampening effect of quasi-indexer ownership on companies’ purchase of non-audit services from auditors seems to be causal. We interpret our finding as evidence consistent with quasi-indexers’ preference for auditor independence and belief about the impairment effect of nonaudit services on auditor independence and with companies catering to their preference. Moreover, we show that the dampening effect of quasi-indexer ownership varies across subsamples in ways consistent with our interpretation.

Keywords: institutional investors, quasi-indexers, non-audit services, auditor independence

JEL Classification: G20, G32, G34, M40, M49

Suggested Citation

Fang, Jing, Quasi-indexer Ownership and Auditor Independence: Evidence from Non-audit Service Fees (November 7, 2019). Available at SSRN: https://ssrn.com/abstract=3482429

Jing Fang (Contact Author)

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

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