Article2012

Managerial Stock Ownership, Analyst Coverage, and Audit Fee

Giorgio Gotti · Sam Han · Julia L. Higgs · Tony Kang

62 citations0/0 files storedJournal of Accounting Auditing & Finance

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Auditing, Earnings Management, Governance Corporate Finance and Governance Corporate Governance and Financial Management

Abstract

The authors study whether managerial ownership and analyst coverage relate to audit fees. 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 fees. The authors find that managerial equity holdings and analyst coverage are negatively associated with audit fees and that these associations are both statistically and economically significant. On average, a 1% increase in managerial ownership translates into a 0.2% reduction in audit fees. In the low managerial ownership sample (i.e., less than 5% managerial ownership), a 1% increase in the ownership reduces the fees by 1.4%. Similarly, one more analyst following a company 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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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1973Risk, Return, and Equilibrium: Empirical Tests 2001Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature 1988Management ownership and market valuation 2003Corporate Governance and Equity Prices 1990Additional evidence on equity ownership and corporate value 1980The Pricing of Audit Services: Theory and Evidence 1996Corporate Disclosure Policy and Analyst Behavior.

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