Interdependencies between Elements of Governance and Auditing: Evidence from Germany

Michael Bremert (), Dennis Voeller () and Nicole Zein
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Michael Bremert: Sonderforschungsbereich 504, Postal: L 13, 15, D-68131 Mannheim
Dennis Voeller: Universität Mannheim, Postal: Schloss, D-68131 Mannheim
Nicole Zein: Universität Mannheim, Postal: Schloss, D-68131 Mannheim

No 07-76, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: This study is the first to examine empirically the relation between audit fees, client and governance attributes in Germany. Auditing is an essential element in the system of corporate governance. Further elements include internal control institutions and management compensation. All these elements of corporate governance are designed to reduce agency problems and information asymmetries. Therefore, interdependencies between these instruments are likely to exist. This study differs from existing research on the association between audit fees and governance institutions as it explicitly considers the German governance regime with its two-tier board system. Using data from German stock market companies, we examine whether governance elements complement or substitute the monitoring role of auditing. After adjustments for size effects, the regression results suggest that the ratio of bonus to total payments as well as the existence of an audit committee significantly lower audit fees.

Pages: 25 pages
Date: 2007-12-18
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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