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Journal ArticleDOI

Managerial Incentives and Audit Fees: Evidence from the Mutual Fund Industry

10 May 2012-Accounting and Finance Research-Vol. 1, Iss: 1, pp 76

AbstractWe examine the relation between audit fees and managerial incentives in the mutual fund industry. Using proxies for managerial incentives based on fund organizational form, advisor compensation, and fund expenses, we find that audit fees are higher when managerial incentives are poor. Our results represent new evidence on the relation between audit fees and managerial incentives.

Topics: Fund administration (68%), Mutual fund (59%), Audit (56%), Incentive (53%)

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Journal ArticleDOI
Abstract: article i nfo Article history: The objective of the study is to examine the association between audit committees, compensation incentives and corporate audit fees in Pakistan by using the data of fifty firms that are listed on the Karachi Stock Ex- change (KSE), Pakistan during the years of 2007-2011. Panel data technique is used in this study, as the data set contains cross-sectional units over several time periods. Panel data control for cross sectional hetero- geneity by observing individual firm and reduces the risk of biasness and collinearity among variables. The result of panel regression indicates that audit committee activity and committee member's independence are significantly associated to audit fee levels, consistent with the argument that audit committees comple- ment the work of external auditors in monitoring management. In contrast, chief executive officers (CEO) pay incentives both short term and long term neither complement nor substitute for audit effort in disciplin- ing Pakistan's firm management. Further results on the full sample of firms reveal significant differences in determinants of audit fees between the years examined. Finally, the results of control variables suggest a sig- nificant association between non-audit fee, board meetings, ROA (return on assets), sales and firm foreign operations with the audit fees in the selected market.

28 citations


Cites background from "Managerial Incentives and Audit Fee..."

  • ...Shah et al. (2011) in their study explored the determinants of CEO compensation in transitional economy....

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  • ...Ross Booth et al. (2012) Managerial incentives and audit fees SEC investment companies/USA/2010 Audit fees is higher when managerial incentives...

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Journal ArticleDOI
Abstract: SUMMARY: We consider the mathematical transformations used for assets of different valuation complexity in audit fee models. These mathematical transformations (such as logs and square roots) relate to the non-linear relationship between client size and audit fees. We use closed-end mutual fund audits to examine this question because virtually all fund assets are reported at fair value. We find that more complexly valued assets are less likely to follow the traditional log transformation because the presence of these assets has a stronger relationship with audit fees that is not fully captured by the coefficient on the logged variable alone. The significance of non-size variables was also found to differ in audit fee models of both closed-end funds and a broad-based sample of public companies when the mathematical transformation of size variables was permitted to vary. These results suggest that the non-linear relationship between client size and audit fees may not always be sufficiently captured by a log...

5 citations


Journal ArticleDOI
Abstract: In this study, we assess whether the liquidity of a closed-end mutual fund’s investments (measured based on the fund’s fair value disclosures) is related to the management fee charged by the fund’s investment advisor. We posit that there will be incremental effort on the part of the advisor to identify and analyze less liquid investments, and that fund investors would be willing to pay for these incremental costs to access less-liquid segments of the market. Consistent with this expectation, we find a significantly positive relationship between the percentage of level 3 assets (the least liquid securities) and management fees. However, we do not find a significant relationship between level 2 securities (which are more liquid than level 3, but less liquid than level 1) and management fees. Overall, our results suggest that investments in the least liquid securities result in higher management fees.

2 citations


Posted Content
01 Jan 2014
Abstract: Institutional owners possess a large portion of the company stocks. Regarding the separation of the ownership from the management in a firm, the pivotal role of these owners in controlling and monitoring the management of the firms becomes more prominent. Since, audit fees is an important issue both for the managers and independent auditors, so this study aims at investigating the relationship between institutional ownership and audit fees in 50 firms listed in Tehran Stack Exchange. Time span for this study has been specified between 2008 to 2012. The analysis of the data is carried out by using Eviews software. At the end, it was found that there is no a meaningful relationship between institutional ownership and audit fees..

1 citations


References
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Journal ArticleDOI
Abstract: In this paper we draw on recent progress in the theory of (1) property rights, (2) agency, and (3) finance to develop a theory of ownership structure for the firm.1 In addition to tying together elements of the theory of each of these three areas, our analysis casts new light on and has implications for a variety of issues in the professional and popular literature, such as the definition of the firm, the “separation of ownership and control,” the “social responsibility” of business, the definition of a “corporate objective function,” the determination of an optimal capital structure, the specification of the content of credit agreements, the theory of organizations, and the supply side of the completeness-of-markets problem.

45,832 citations


Journal ArticleDOI
Abstract: ABSENT fiat, the form of organization that survives in an activity is the one that delivers the product demanded by customers at the lowest price while covering costs.1 Our goal is to explain the survival of organizations characterized by separation of "ownership" and "control"-a problem that has bothered students of corporations from Adam Smith to Berle and Means and Jensen and Meckling.2 In more precise language, we are concerned with the survival of organizations in which important decision agents do not bear a substantial share of the wealth effects of their decisions. We argue that the separation of decision and risk-bearing functions observed in large corporations is common to other organizations such as large professional partnerships, financial mutuals, and nonprofits. We contend that separation of decision and risk-bearing functions survives in these organizations in part because of the benefits of specialization of

12,776 citations


Journal ArticleDOI
Abstract: Regulators and small audit firms allege that audit firm size does not affect audit quality and therefore should be irrelevant in the selection of an auditor. Contrary to this view, the current paper argues that audit quality is not independent of audit firm size, even when auditors initially possesses identical technological capabilities. In particular, when incumbent auditors earn client-specific quasi-rents, auditors with a greater number of clients have ‘more to lose’ by failing to report a discovered breach in a particular client's records. This collateral aspect increases the audit quality supplied by larger audit firms. The implications for some recent recommendations of the AICPA Special Committee on Small and Medium Sized Firms are developed.

4,563 citations


"Managerial Incentives and Audit Fee..." refers background in this paper

  • ...For example, several studies find that audit fees are a positive function of auditor reputation [DeAngelo (1981), Francis (1984), Palmrose (1986), Francis and Stokes (1986), Barber, Brooks, and Ricks (1987), Francis and Simon (1987), Rubin (1988), Craswell, Francis, and Taylor (1995)]....

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Journal ArticleDOI
Abstract: Social and economic activities, like religion, entertainment, education, research, and the production of other goods and services, are carried on by different types of organizations, for example, corporations, proprietorships, partnerships, mutuals and nonprofits. There is competition among organizational forms for survival. The form of organization that survives in an activity is the one that delivers the product demanded by customers at the lowest price while covering costs. The characteristics of residual claims are important both in distinguishing organizations from one another and in explaining the survival of organizational forms in specific activities. This paper develops a set of propositions that explaim the special features of the residual claims of different organizational forms as efficient approaches to controlling agency problems. © M. C. Jensen and E. F. Fama, 1983 Michael C. Jensen, Foundations of Organizational Strategy Chapter 6, Harvard University Press, 1998. Journal of Law & Economics, Vol XXVI (June 1983) This document is available on the Social Science Research Network (SSRN) Electronic Library at: http://papers.ssrn.com/sol3/paper.taf?ABSTRACT_ID=94032 AGENCY PROBLEMS AND RESIDUAL CLAIMS

3,283 citations


Journal ArticleDOI
Abstract: The question of the existence of competition among auditors has been the subject of considerable discussion in recent years. More specifically, the "Big Eight" firms as a group have been accused of monopolizing the market for audits {Staff Study of the Subcommittee on Reports, Accounting and Management of the Senate Committee on Government Operations [1977]). However, evidence on the issue is scanty and typically anecdotal (e.g., Bernstein [1978]). The evidence of the Staff Study itself is limited to concentration statistics, with the allegations relying on what has come to be called the "concentration doctrine" (Demsetz [1973]). According to this doctrine, supplier concentration is a reliable indicator of supplier behavior and performance. In this paper, I provide evidence from a test of the hypothesis that price competition prevails throughout the market for the audits of publicly held companies, irrespective of the share of a market segment which is serviced by the Big Eight firms. The evidence is based on an examination of a sample cross-section of audit fees.

2,296 citations


"Managerial Incentives and Audit Fee..." refers background in this paper

  • ...As suggested by Simunic (1980), audit complexity is also potentially important in the determination of audit fees....

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