Do Auditors Price Common Ownership?

Forthcoming: AUDITING: A Journal of Practice & Theory

2 Pages Posted: 5 Jul 2023 Last revised: 28 Jul 2023

See all articles by K. K. Raman

K. K. Raman

The University of Texas at San Antonio

Chunlai Ye

Texas A&M University-Corpus Christi

Lin-Hui Yu

National Taiwan University

Date Written: July 5, 2023

Abstract

Common ownership (i.e., financial institutions’ block holding of stock in industry rivals) and its implications for investors are matters of current interest and debate (SEC 2018). Motivated by this debate and the salience of common ownership, we investigate whether and how auditors price common ownership. Consistent with the notion that common ownership improves monitoring, we find that common ownership is related to lower audit fees (about 6 percent lower). Further, we find that the reduction in audit fees is more pronounced for companies whose common owners (1) have stronger incentives to monitor, and (2) have “scale” in monitoring. Using path analysis we find that common ownership contributes to lower audit fees through improved earnings quality. Collectively, our findings speak to the effect of monitoring mechanisms from common ownership and are of potential interest to investors and the SEC as they attempt to assess the broader implications of common ownership.

Keywords: Common ownership, audit pricing, long-term and transient institutional investors, SEC

JEL Classification: M4; M42

Suggested Citation

Raman, K. K. and Ye, Chunlai and Yu, Lin-Hui, Do Auditors Price Common Ownership? (July 5, 2023). Forthcoming: AUDITING: A Journal of Practice & Theory, Available at SSRN: https://ssrn.com/abstract=4500795

K. K. Raman

The University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States
210-458-8749 (Phone)

Chunlai Ye

Texas A&M University-Corpus Christi ( email )

6300 Ocean Drive
Corpus Christi, TX 78412
United States

Lin-Hui Yu (Contact Author)

National Taiwan University ( email )

1 Sec. 4, Roosevelt Road
Taipei 106, 106
Taiwan

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
98
Abstract Views
302
Rank
480,208
PlumX Metrics