Corporate Governance, Fees for Non-Audit Services and Accrual Choices

51 Pages Posted: 5 May 2003

See all articles by David F. Larcker

David F. Larcker

Stanford University - Graduate School of Business

Scott A. Richardson

AQR Capital Management, LLC; London Business School

Date Written: April 2003

Abstract

We examine the relation between the relative amount of fees paid to auditors for non-audit services and the behavior of accrual measures. We extend prior research in two important directions. First, using a pooled sample of 2,295 firms for the fiscal year 2000, we find very little evidence of a relation between the provision of non-audit services and measure of accruals. However, there appears to be three distinct clusters of firms where only one cluster (consisting of only about 20 percent of the sample) exhibits a statistically positive association between non-audit fees and accrual behavior. Second, we examine the corporate governance characteristics of firms in the cluster with a positive association between non-audit fees and accrual behavior relative to the remaining firms. We find that this subset of firms have a smaller market capitalization, lower institutional holdings, higher insider holdings, smaller board of directors (and audit committee), and lower percentage of independent board (and audit committee) members. These results suggest that the provision of non-audit services is potentially problematic only for a small subset of firms that appear to be de facto controlled by management.

Keywords: corporate governance, earnings quality, accruals, audit quality, non-audit services

JEL Classification: G30, G34, G38, M41, M43, M49

Suggested Citation

Larcker, David F. and Richardson, Scott Anthony, Corporate Governance, Fees for Non-Audit Services and Accrual Choices (April 2003). Available at SSRN: https://ssrn.com/abstract=394441 or http://dx.doi.org/10.2139/ssrn.394441

David F. Larcker (Contact Author)

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Scott Anthony Richardson

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
1,694
Abstract Views
6,572
rank
9,550
PlumX Metrics