We evaluate and summarize the large body of audit fee research and use meta-analysis to test the combined effect of the most commonly used independent variables. The perspective provided by the meta-analysis allows us to reconsider the anomalies, mixed results, and gaps in audit fee research. We find that, although many independent variables have consistent results, several show no clear pattern to the results and others only show significant results in certain periods or particular countries. These variables include a loss by the client and leverage, which have become significant in comparatively recent studies; internal auditing and governance, both of which have mixed results; auditor specialization, regarding which there is still some uncertainty; and the audit opinion, which was a significant variable before 1990 but not in more recent studies.

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Audit Fees: A Meta-analysis of the Effect of Supply and Demand Attributes*

This paper examines the relationship between board characteristics and external audit fees for Fortune 1000 companies. Competing arguments exist regarding the possible relationship between board characteristics and fees. One view is that a more independent, diligent, and expert board would be more concerned with effectively discharging its monitoring role and would be more supportive of the external audit function. Such a board would be likely to insist on enhanced audit scope, thus increasing the audit fee. An alternative view is that a more independent, diligent, and expert board would reduce the auditor's assessment of control risk and would substitute some of its own monitoring for the monitoring of the auditor. This would reduce audit effort, thus decreasing the audit fee. Consistent with the first view, we find significant positive relationships between board independence, diligence, and expertise and audit fees. A more independent, diligent, and expert board does not appear to substitute for audit effort; rather, such a board may complement auditor oversight. These results add to the growing body of literature documenting a relationship between corporate governance mechanisms and various facets of the financial reporting and audit processes. In addition, the results add to our understanding of the determinants of audit fees.

https://papers.ssrn.com/sol3/Delivery.cfm/000706501.pdf?abstractid=231582

Board Characteristics and Audit Fees

Enterprise risk management (ERM) has been the topic of increased media attention in recent years. The objective of this study is to measure the extent to which specific firms have implemented ERM programs and, then, to assess the value implications of these programs. We focus our attention in this study on U.S. insurers in order to control for differences that might arise from regulatory and market differences across industries. We simultaneously model the determinants of ERM and the effect of ERM on firm value. We estimate the effect of ERM on Tobin's Q, a standard proxy for firm value. We find a positive relation between firm value and the use of ERM. The ERM premium of roughly 20 percent is statistically and economically significant.

https://www.jstor.org/stable/info/41350401

The Value of Enterprise Risk Management

ural and Political Observations Made upon the Bills of Mortality (1662) stands as the first great example of modern statistical data analysis, Bernstein also spends some time telling us about the genesis of Lloyd’s of London, the famous insurance firm. This weaving of topics that are standard in the history of probability and statistics with many that are not is one of the strengths and attractions of the book. Another is the obvious zest with which Bernstein describes the many intriguing people and tantalizing mysteries so peculiar to the mathematics of chance.

Against the Gods: The Remarkable Story of Risk

Enterprise risk management (ERM) has captured the attention of risk management professionals and academics worldwide. Unlike the traditional "silo-based" approach to corporate risk management, ERM enables firms to benefit from an integrated approach to managing risk that shifts the focus of the risk management function from primarily defensive to increasingly offensive and strategic. Despite the heightened interest in ERM, little empirical research has been conducted on the topic. This study provides an initial attempt at identifying the determinants of ERM adoption. We construct a sample of firms that have signaled their use of ERM by appointing a Chief Risk Officer (CRO) who is charged with the responsibility of implementing and managing the ERM program. We use a logistic regression framework to compare these firms to a size - and industry-matched control sample. While our results suggest a general absence of differences in the financial and ownership characteristics of sample and control firms, we find that firms with greater financial leverage are more likely to appoint a CRO. This finding is consistent with the hypothesis that firms appoint CROs to reduce information asymmetry regarding the firm's current and expected risk profile.

The Determinants of Enterprise Risk Management: Evidence from the Appointment of Chief Risk Officers

This paper is motivated by the progressive liberalisation of the European insurance market in recent years. It uses stochastic frontier analysis to estimate Flexible Fourier cost functions for European insurance companies. Separate frontiers are estimated for life, non-life and composite companies. We adopt a maximum likelihood approach to estimation in which the variance of both one-sided and two-sided error terms is modelled jointly with the frontiers. This approach allows us to simultaneously control for the impact of heteroskedasticity on the estimation of scale economies as well as estimating the effect of firm size and market structure on X -inefficiency. The study draws on Standard & Poor’s Eurothesys data set of financial reports for the period 1995 to 2001. This provides technical and non-technical accounts at year-end for life, non-life and composite insurance businesses in 14 major European countries. Our estimates suggest that over this period most European insurers were operating under conditions of decreasing costs (increasing returns to scale), and that company size and domestic market share were significant factors determining X -inefficiency. Larger firms, and those with high market shares, tend to have higher levels of cost inefficiency.

Market structure and the efficiency of European insurance companies: A stochastic frontier analysis

This paper explores the efficiency of European specialist and composite insurers transacting long-term insurance business. Value measures of insurance company inputs and outputs are utilised to undertake an exploration of the technical efficiency of European insurers. This is achieved by benchmarking the relative performance of insurers licensed to transact long-term business in fifteen European countries using data from Standard & Poor’s Eurothesys database for the years 1996-1999. Data Envelopment Analysis is utilised to generate three different efficiency measures for each long-term insurer (namely pure technical efficiency, scale efficiency, and mix efficiency. It is clear from the analysis that there are wide variations in all types of efficiency. The most efficient insurers in pure technical terms are likely to be either very large or very small (specialist) insurers. Mutuality and financial security are also conducive to technical efficiency. A comparison of average efficiency among fifteen European countries shows some striking international differences. Insurers transacting long-term business in the UK, Spain, Sweden and Denmark are likely to have highest average levels of technical efficiency. On the other hand UK insurers appear to have particularly low levels of scale and mix efficiency when compared to their European counterparts. Size and Efficiency in European Long-Term Insurance Companies Stephen Diacon, Ken Starkey and Christopher O’Brien

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Size and Efficiency in European Long-term Insurance Companies: An International Comparison

Framing Effects and Risk Perception: The Effect of Prior Performance Presentation Format on Investment Fund Choice

Objectives: To identify trends in the incidence and cost of clinical negligence claims. To determine the current annual cost to the NHS as a whole in terms of cash paid out to patients and their solicitors and the defence costs incurred. Design: Analysis of records on database. Setting: A well defined group of hospitals within one health authority which collected information on a consistent basis over many years. Main outcome measures: Data on individual claims. Trends in incidence of claims and costs identified independently from organisational reforms and changes in accounting practices. Results: The rate of litigation increased from 0.46 to 0.81 closed claims per 1000 finished consultant episodes between 1990 and 1998. Overall expenditure on clinical negligence by the NHS in England in 1998 was estimated at £84 million (95% confidenceinterval £48 million to £130 million). Conclusions: After adjustment for hospital activity, the rate of closed claims increased during the 1990s by about 7% per annum, a substantial rate of growth but not the uncontrolled explosion sometimes alluded to in the wider media. More coordinationand openness are needed in data collection.

https://www.bmj.com/content/bmj/320/7249/1567.full.pdf

Current cost of medical negligence in NHS hospitals: analysis of claims database.

by Stephen Diacon and Christine Ennew1. IntroductionRisk perceptions are important in an environment where individual actors have limitedinformation and are rational only to a certain extent, and where there is no universally agreedunderstanding of how risk should be conceptualized or measured. The market for personalﬁnancial services provides a prime example of such an environment. This paper presents theresults of a detailed investigation of the factors that characterize the perceived risk invariouspersonal ﬁnancial services, pensions, life insurance and banking products currently availableto individual savers in the United Kingdom.This analysis of ﬁnancial risk perceptions is based on the well-known psychometricparadigm and uses psychometric scaling methods to produce quantitative measures ofperceived risk and beneﬁt.

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Stephen Diacon

Papers

Market structure and the efficiency of European insurance companies: A stochastic frontier analysis

Size and Efficiency in European Long-term Insurance Companies: An International Comparison

Framing Effects and Risk Perception: The Effect of Prior Performance Presentation Format on Investment Fund Choice

Current cost of medical negligence in NHS hospitals: analysis of claims database.

Consumer Perceptions of Financial Risk