Content area
Full Text
Rev Quant Finan Acc (2007) 28:257285 DOI 10.1007/s11156-006-0014-7
The empirical relationship between ownership characteristics and audit fees
Santanu Mitra Mahmud Hossain Donald R. Deis
Published online: 30 January 2007
C Springer Science+Business Media, LLC 2007
Abstract The present study examines the empirical relationship between ownership characteristics and audit fees. The basic premise is that the level of ownership sophistication and the extent to which ownership is large and substantial impact the effectiveness of stockholder monitoring on corporate affairs including the nancial reporting process. Furthermore, high managerial ownership rms may experience a decline in agency problems in nancial reporting due to a decrease in managerial propensity to misreport nancial results. By employing a cross-sectional least squares regression analysis for a sample of 358 New York Stock Exchange-listed rms audited by the Big Five auditors, we nd evidence of a signicantly positive relationship between diffused institutional stock ownership (i.e., having less than 5% individual shareholding) and audit fees, and a signicantly negative relationship between institutional blockholder ownership (i.e., having 5% or more individual shareholding) and audit fees. Finally, we document that managerial stock ownership is negatively associated with audit fees. We do not, however, nd evidence of any relationship between noninstitutional blockholder ownership (with at least 5% individual stock ownership) and audit fees. The studys main results hold in various specication tests
Data availability: Data used for this study are obtained from publicly available sources described in the text.
S. Mitra ([envelopeback])
Department of Accounting, School of Business Administration, Wayne State University, Detroit, MI 48202, USAe-mail: [email protected]
M. HossainDepartment of Accounting, Fogelman College of Business, University of Memphis, TN, USA e-mail: [email protected]
D. R. DeisEnnis & Virginia Joslin Endowed Chair in Accounting, College of Business, Texas A&M University at Corpus Christi, 6300 Ocean Drive, Corpus Christi, TX 78412, USAe-mail: [email protected]
Springer
258 S. Mitra et al.
including when the effects of board-related and audit committee variables are factored in the analysis. Based on the observed relationship between the ownership variables and audit fees, we suggest that the ownership characteristics of a rm as a part of its governance mechanism constitute an important determinant of audit fees.
Keywords Diffused institutional stock ownership . Institutional and noninstitutional blockholder ownership . Managerial stock ownership . Audit fees . Agency problem...