Managerial ownership, audit firm size, and audit fees: Australian evidence

Yuan George Shan, Indrit Troshani and Ann Tarca

Journal of International Accounting, Auditing and Taxation, 2019, vol. 35, issue C, 18-36

Abstract: We analyze the extent to which managerial ownership is associated with auditor selection and the audit firm’s assessed overall risk of audit clients. We test the association between managerial ownership and both audit firm size and audit fees in a sample of Australian-listed companies between 2005 and 2015. Prior literature analyzing the relationships in US, UK, and Hong Kong settings found that the significance and direction of the relationship is related to the level of managerial ownership. When managerial ownership levels are compatible with shareholder interests (i.e., “convergence-of-interests”), the relationship between managerial ownership and audit firm size and audit fees is negative. Conversely, when managerial ownership levels are contrary to the interests of shareholders (i.e., “entrenchment”), the relationship is positive. Our results are largely consistent with prior literature, but we document more specifically the levels of ownership at which convergence-of-interests and entrenchment occur in the Australian market.

Keywords: Managerial ownership; Audit firm size; Audit fees; Convergence-of-interests hypothesis; Entrenchment hypothesis (search for similar items in EconPapers)
JEL-codes: M42 M48 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jiaata:v:35:y:2019:i:c:p:18-36

DOI: 10.1016/j.intaccaudtax.2019.05.002

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