Discretionary Accounting Accruals, Managers' Incentives and Audit Fees

31 Pages Posted: 20 May 2003

See all articles by Ferdinand A. Gul

Ferdinand A. Gul

Monash University Sunway Campus

Charles J.P. Chen

City University of Hong Kong (CityUHK) - Department of Accountancy

Judy S.L. Tsui

Hong Kong Polytechnic University - School of Accounting and Finance

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Abstract

This paper examines the linkages between discretionary accruals (DAs), managerial share ownership, management compensation and audit fees. It draws on the theory that managers of firms with high management ownership are likely to use DAs to communicate value relevant information while managers of firms with high accounting-based compensation are likely to use DAs opportunistically to manage earnings to improve their compensation. OLS regression results of 648 Australian firms show that (1) there is a positive association between DAs and audit fees, and (2) managerial ownership negatively affects the positive relationship between DAs and audit fees, and 3) this negative impact is further found to be weaker for firms with high accounting-based management compensation.

Keywords: discretionary accounting accruals, managerial ownership, management compensation, audit fees

JEL Classification: L84, M41, M43, M49, J33, D21, C21, G32

Suggested Citation

Gul, Ferdinand A. and Chen, Charles Jieping and Tsui, Judy S.L., Discretionary Accounting Accruals, Managers' Incentives and Audit Fees. Available at SSRN: https://ssrn.com/abstract=390302 or http://dx.doi.org/10.2139/ssrn.390302

Ferdinand A. Gul (Contact Author)

Monash University Sunway Campus ( email )

Jalan Lagoon Selatan
Selangor Darul Ehsan
Bandar Sunway, 46150
Malaysia

Charles Jieping Chen

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China
+852 2788-7909 (Phone)
+852 2788-7944 (Fax)

Judy S.L. Tsui

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong
852 2766 7828 (Phone)
852 2334 7830 (Fax)

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