Managerial Ownership, Corporate Monitoring and Audit Fee
TL;DR: In this article, the authors study whether managerial ownership and analyst coverage relate to audit fee and find that managerial ownership is negatively associated with audit effort and that these associations are both statistically and economically significant.
Abstract: We study whether managerial ownership and analyst coverage relate to audit fee. To the extent that these corporate governance factors relate to auditor assessment of the firm’s agency costs and hence various risks the auditor must consider in the development of an audit program, they will affect audit effort and hence audit fee. We find that managerial equity holdings and analyst coverage are negatively associated with audit fee and that these associations are both statistically and economically significant. On average, one percent increase in managerial ownership translates into 0.2% reduction in audit fees. In the low managerial ownership sample (i.e., less than 5% managerial ownership), one percent increase in the ownership reduces the fees by 1.4%. Similarly, one more analysts following reduces audit fees by 9.3%. These results add to the literature on the effects of corporate governance on audit fees.
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TL;DR: In this article, the authors identify the factors affecting the auditing and consulting expenditures in Brazilian public companies and find that audit fees are positively related to company size, corporate governance quality, and the Big Four status of the auditor.
Abstract: The aim of the present study is to identify the factors affecting the auditing and consulting expenditures in Brazilian public companies. The current study was motivated by the lack of studies on auditing and consulting expenses in Brazil, whereas this matter has been researched for years in other countries. Data on Brazil are scarce because the disclosure of spending on auditing and consulting services provided by independent auditors only became mandatory in 2009. The disclosure of these data enables the analysis of the drivers of the fees paid by companies for these services. In this study, we only analyzed the expenditures for consultancy services provided by the same auditing firm; that is, we ignored all spending on other consultants. The results indicate that audit fees are positively related to company size, corporate governance quality, and the Big Four status of the auditor. In terms of consulting expenses, there is a positive relationship between company size and Big Four status, but there is no significant relationship with corporate governance.
35 citations
01 Jan 2012
TL;DR: In this article, the authors identify the factors affecting the auditing and consulting expenditures in Brazilian public companies and find that audit fees are positively related to company size, corporate governance quality, and the Big Four status of the auditor.
Abstract: The aim of the present study is to identify the factors affecting the auditing and consulting expenditures in Brazilian public companies. The current study was motivated by the lack of studies on auditing and consulting expenses in Brazil, whereas this matter has been researched for years in other countries. Data on Brazil are scarce because the disclosure of spending on auditing and consulting services provided by independent auditors only became mandatory in 2009. The disclosure of these data enables the analysis of the drivers of the fees paid by companies for these services. In this study, we only analyzed the expenditures for consultancy services provided by the same auditing firm; that is, we ignored all spending on other consultants. The results indicate that audit fees are positively related to company size, corporate governance quality, and the Big Four status of the auditor. In terms of consulting expenses, there is a positive relationship between company size and Big Four status, but there is no significant relationship with corporate governance.
11 citations
Cites background from "Managerial Ownership, Corporate Mon..."
...According to Gotti et al. (2011), understanding how auditing service fees are determined is useful not only for studying matters of independence but also for generating indicators related to how auditing firms assess the risk and complexity of the audited companies....
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TL;DR: Lee, Sang Cheol; Rhee, Mooweon; Yoon, Jongchul as mentioned in this paper, the effects of foreign monitoring on audit quality, reports,New York]Social Science Research Network
Abstract: Lee, Sang Cheol; Rhee, Mooweon; Yoon, Jongchul.February, 2012.The effects of foreign monitoring on audit quality,Reports,[New York]Social Science Research Network
8 citations
TL;DR: In this paper, the authors identify the determinants of the fees paid by Brazilian publicly traded companies to independent auditors in 2010 to 2014 through regression with data arranged in a panel, with the objective of identifying the aspects that can be used by companies for information management or that require more auditing time for signaling points of greater risks.
Abstract: The studies on the determinants of audit fees in Brazil became possible with the mandatory disclosure of audit expenses in 2009. Thus, the objective of this research was to identify the determinants of the fees paid by Brazilian publicly traded companies to independent auditors in 2010 to 2014. The analysis took place through regression with data arranged in panel. Size, performance, complexity, audit firm size, adoption of corporate governance practices, audit rotation, industry and litigation risks have all been found to have an impact on the fees. Therefore, the aspects that can be used by companies for the purpose of information management or that require more auditing timefor signaling points of greater risks are highlighted. In addition, understanding the determinants allows companies to plan future expenditures with audit fees and assists regulators and inspectors in defining and comparing key determinants of firms for identifying abnormal payments. These results complement the research in Brazil, Australia, Bangladesh, Norway, Bahrain, England, Jordan, Kuwait, USA, Malaysia, Nigeria, Abu Dhabi, Italy and Indonesia.
5 citations
01 Jan 2015
TL;DR: In this paper, the authors investigated the impact of the mandatory adoption of the International Financial Reporting Standards (IFRS) by Brazilian companies listed in BM&FBovespa on audit fees.
Abstract: This study aims to investigate if the mandatory adoption of the IFRS by the Brazilian companies listed in BM&FBovespa has made an impact on the audit fees. The final sample was made by 151 companies, between 2009 and 2012. To restrict the relations, other control variables of the size of the companies, of the turnover of auditing companies and of the quality level of the published financial statements were listed. The results made evident that the mandatory adoption of the IFRS represented a significant increase of 20.71% in the auditing fees. It has also been noticed that a positive relation between the auditing fees charged by the services and the size of the companies. However, the rotation of the auditing companies has generated a negative impact, reducing the fees paid to the independent auditors. Related to the quality of the financial statements, it was not verified a statistically significant relation.
4 citations
References
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TL;DR: In this article, the relationship between average return and risk for New York Stock Exchange common stocks was tested using a two-parameter portfolio model and models of market equilibrium derived from the two parameter portfolio model.
Abstract: This paper tests the relationship between average return and risk for New York Stock Exchange common stocks. The theoretical basis of the tests is the "two-parameter" portfolio model and models of market equilibrium derived from the two-parameter portfolio model. We cannot reject the hypothesis of these models that the pricing of common stocks reflects the attempts of risk-averse investors to hold portfolios that are "efficient" in terms of expected value and dispersion of return. Moreover, the observed "fair game" properties of the coefficients and residuals of the risk-return regressions are consistent with an "efficient capital market"--that is, a market where prices of securities
14,171 citations
TL;DR: This article investigated the relationship between management ownership and market valuation of the firm, as measured by Tobin's Q. In a 1980 cross-section of 371 Fortune 500 firms, they found evidence of a significant nonmonotonic relationship.
7,523 citations
"Managerial Ownership, Corporate Mon..." refers result in this paper
...In addition, these results complement prior research that examines the effects of managerial ownership on firm value (e.g., Morck et al. 1988, McConnel and Servaes 1990)....
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TL;DR: Corporate disclosure is critical for the functioning of an efficient capital market as mentioned in this paper, and firms provide disclosure through regulated financial reports, including the financial statements, footnotes, management discussion and analysis, and other regulatory filings.
Abstract: Corporate disclosure is critical for the functioning of an efficient capital market. Firms provide disclosure through regulated financial reports, including the financial statements, footnotes, management discussion and analysis, and other regulatory filings. In addition, some firms engage in voluntary communication, such as management forecasts, analysts? presentations and conference calls, press releases, internet sites, and other corporate reports. Finally, there are disclosures about firms by information intermediaries, such as financial analysts, industry experts, and the financial press.
5,443 citations
"Managerial Ownership, Corporate Mon..." refers background in this paper
...Prior research shows that financial anysts play a monitoring role in corporations (e.g., Jensen and Meckling 1976, Healy and Palepu 2001, Knyazeva 2007, Dyck et al. 2008, Yu 2008)....
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...Prior research suggests that financial analysts who have financial expertise track corporate financial statements on a regular basis are likely to act as external monitors of managers (Jensen and Meckling 1976, Schipper 1991, Healy and Palepu 2001, Dyck et al. 2008, Yu 2008)....
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...The literature suggests that financial analysts who have financial expertise track corporate financial statements on a regular basis are likely to act as external monitors of managers (Jensen and Meckling 1976, Healy and Palepu 2001)....
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...As Healy and Palepu (2001) summarize, financial analysts are known to collect information from public and private sources, evaluate the current performance of firms that they follow, make forecasts about their future prospects, and recommend that investors buy, hold or sell the stock....
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TL;DR: The authors investigated the relation between Tobin's Q and the structure of equity ownership for a sample of 1,173 firms for 1976 and 1,093 firms for 1986 and found a significant curvilinear relation between Q and common stock owned by corporate insiders.
4,567 citations
Journal Article•
TL;DR: In this paper, the authors integrate elements from the theory of agency, property rights and finance to develop a theory of the ownership structure of the firm and define the concept of agency costs, show its relationship to the separation and control issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why and investigate the Pareto optimality of their existence.
Abstract: This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem. The directors of such [joint-stock] companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company. — Adam Smith (1776)
3,246 citations