Article2012

Audit Committee and CEO Ethnicity and Audit fees: Some Malaysian evidence

Shireenjit Kaur Johl · Nava Subramaniam · Mazlina Mat Zain

68 citations0/0 files storedThe International Journal of Accounting

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

Abstract

This study extends the literature on audit pricing by examining the relationship between ethnicity (bumiputra vs non-bumiputra), corporate governance attributes, and audit fees using data from 559 publicly-listed companies in Malaysia in 2005. Drawing from theories of ethnicity and political economy, we discuss our two hypotheses that predict positive associations between audit fees and (1) the proportion of bumiputra members on audit committees, and (2) the presence of a bumiputra CEO. The results support the hypothesis that firms with bumiputra CEOs incur higher audit fees, but we do not find an association for firms with bumiputra-dominant audit committees. In additional analysis, we find that the audit premium paid by firms with a bumiputra CEO is higher for the smaller client firms. Further, we find that firms managed by a bumiputra CEO with a fully bumiputra-composed audit committee tend to pay higher audit fees than the other firms, indicating that there is a combined ethnicity effect on audit fees.

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References

1980The Pricing of Audit Services: Theory and Evidence 2006Political Connections and Corporate Bailouts 2004What Determines Corporate Transparency?2003Incentives versus standards: properties of accounting income in four East Asian countries 2002Culture, Corporate Governance and Disclosure in Malaysian Corporations 1983National Cultures in Four Dimensions: A Research-Based Theory of Cultural Differences among Nations 2006Audit Fees: A Meta‐analysis of the Effect of Supply and Demand Attributes*2002Cronyism and capital controls: evidence from Malaysia

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