Does Agency Theory Provide a General Framework for Audit Pricing?

10 Pages Posted: 16 Oct 2004

See all articles by Jussi Nikkinen

Jussi Nikkinen

University of Vaasa - Department of Accounting and Finance

Petri Sahlström

University of Oulu

Abstract

This paper examines whether agency theory provides a general framework for audit pricing. It is hypothesized that audit fees are determined by agency theory and a set of other factors identified in the previous literature. To empirically test the hypothesis, audit pricing is analyzed in seven countries representing different kinds of accounting and economic environments. The results of the study confirm that a negative relationship exists between audit fees and manager ownership and that a positive relationship exists between audit fees and free cash flow in several countries. This implies that agency theory can be used, at least to some extent, to explain audit fees internationally. Moreover, agency theory explains audit fees similarly across countries while the control variables have different impact on audit fees.

JEL Classification: G32, M41, M49

Suggested Citation

Nikkinen, Jussi and Sahlström, Petri, Does Agency Theory Provide a General Framework for Audit Pricing?. International Journal of Auditing, Vol. 8, No. 3, pp. 253-262, November 2004. Available at SSRN: https://ssrn.com/abstract=605164

Jussi Nikkinen (Contact Author)

University of Vaasa - Department of Accounting and Finance ( email )

P.O. Box 700
FIN-65101 Vaasa, FI-65101
Finland
+358 6 3248541 (Phone)

Petri Sahlström

University of Oulu ( email )

P.O. Box 4600
Oulu FIN-90014
Finland

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