Pub Date : 2022-09-09DOI: 10.1108/maj-06-2021-3177
Dipanwita Chakraborty, Neeraj J. Gupta, Jitendra Mahakud, M. Tiwari
Purpose The purpose of this study is to examine the impact of corporate governance (CG) on the shareholding level of retail investors in Indian listed firms. Design/methodology/approach Primarily, a broad CG-index was constructed based on the Indian Companies Act, 2013; Clause 49 listing agreement; and Securities Contracts (Regulation) Act, 1956. Thereafter, a panel data approach has been used to examine the association between CG attributes and retail shareholdings (RSs) during 2014–2015 and 2018–2019. Findings Authors find that the firm-level CG quality positively affects retail investors’ shareholding level. The results explain that among various attributes of CG, retail investors pay more attention to firms’ audit and board information while making investment decisions. The results also reveal that the influence of CG attributes on RSs is lesser for group-affiliated, mature and large-sized firms than for stand-alone, young and small-sized firms. Practical implications First, the study provides new insight to the firms for increasing retail-shareholding levels and complying with India’s ongoing minimum public shareholding norms by improving CG practices concerning specific CG mechanisms. Second, it illuminates the regulators and policymakers to monitor and strengthen firms’ governance quality in light of ongoing regulatory reforms. Originality/value This study is a new investigation that explores the impact of CG on investment decisions of retail investors from the perspective of an emerging economy.
{"title":"Corporate governance and investment decisions of retail investors in equity: do group affiliation and firm age matter?","authors":"Dipanwita Chakraborty, Neeraj J. Gupta, Jitendra Mahakud, M. Tiwari","doi":"10.1108/maj-06-2021-3177","DOIUrl":"https://doi.org/10.1108/maj-06-2021-3177","url":null,"abstract":"\u0000Purpose\u0000The purpose of this study is to examine the impact of corporate governance (CG) on the shareholding level of retail investors in Indian listed firms.\u0000\u0000\u0000Design/methodology/approach\u0000Primarily, a broad CG-index was constructed based on the Indian Companies Act, 2013; Clause 49 listing agreement; and Securities Contracts (Regulation) Act, 1956. Thereafter, a panel data approach has been used to examine the association between CG attributes and retail shareholdings (RSs) during 2014–2015 and 2018–2019.\u0000\u0000\u0000Findings\u0000Authors find that the firm-level CG quality positively affects retail investors’ shareholding level. The results explain that among various attributes of CG, retail investors pay more attention to firms’ audit and board information while making investment decisions. The results also reveal that the influence of CG attributes on RSs is lesser for group-affiliated, mature and large-sized firms than for stand-alone, young and small-sized firms.\u0000\u0000\u0000Practical implications\u0000First, the study provides new insight to the firms for increasing retail-shareholding levels and complying with India’s ongoing minimum public shareholding norms by improving CG practices concerning specific CG mechanisms. Second, it illuminates the regulators and policymakers to monitor and strengthen firms’ governance quality in light of ongoing regulatory reforms.\u0000\u0000\u0000Originality/value\u0000This study is a new investigation that explores the impact of CG on investment decisions of retail investors from the perspective of an emerging economy.\u0000","PeriodicalId":47823,"journal":{"name":"Managerial Auditing Journal","volume":" ","pages":""},"PeriodicalIF":2.9,"publicationDate":"2022-09-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44852268","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-09-01DOI: 10.1108/maj-11-2020-2902
L. Brooks
Purpose This study aims to examine the moderating effect of audit firm tenure on the association between corporate social responsibility (CSR) and firm value. Prior studies provide mixed results on this association, which may be due to differing theoretical expectations related to CSR and firm value. It is also possible that external stakeholders are unable to differentiate between positive and negative CSR investments, as CSR reports are generally not assured by independent third parties. Thus, the authors propose that audit firm tenure may be used by external stakeholders to evaluate CSR performance. Design/methodology/approach The authors use an ordinary least squares regression to examine the moderating effect of audit firm tenure on the relation between CSR and firm value after controlling for other determinants of firm value and various internal and external governance mechanisms documented in the literature. The sample consists of 15,707 firm-year observations from US firms during the sample period of 2000 to 2012. The authors measure CSR quality using rating scores from MSCI ESG STATS (formerly the KLD database), audit firm tenure as the number of years the incumbent auditor has served the client and firm value using Tobin’s Q. Findings The results indicate that CSR is positively associated with firm value when audit firm tenure is long but not when tenure is short. The results are robust to alternative measures of firm value, CSR performance scores, and individual CSR dimensions. The evidence supports the argument against mandatory audit firm rotation in the USA. Research limitations/implications Future studies could examine a similar issue in alternative settings and/or look at cross-sectional variations among firms on the association between CSR and firm value by other auditor traits such as auditor industry specialization and big-name reputation. Additionally, as auditor alone is unable to ensure the quality of management disclosures and their accountability, future studies could examine the moderating effect of internal and other external governance mechanisms on the association between CSR and firm value, exploring when the signaling effect of auditor tenure on CSR reporting quality and its effect on firm value is most salient. Practical implications The findings are important to regulators and investors. The authors provide evidence that longer audit tenure serves as a signaling device for external investors with regard to the quality of a firm’s CSR performance. Hence, the study facilitates regulators’ cost-benefit analysis related to mandating audit firm rotation. The evidence suggests that mandating a term limit on auditor tenure may have the unintended consequence of eliminating a signaling effect of auditor tenure on the quality of CSR disclosures under information asymmetry. This supports the Public Company Oversight Board’s decision to forgo the requirement of mandatory audit firm rotation in the USA. Originality/
{"title":"Does audit firm tenure enhance firm value? Closing the expectation gap through corporate social responsibility","authors":"L. Brooks","doi":"10.1108/maj-11-2020-2902","DOIUrl":"https://doi.org/10.1108/maj-11-2020-2902","url":null,"abstract":"\u0000Purpose\u0000This study aims to examine the moderating effect of audit firm tenure on the association between corporate social responsibility (CSR) and firm value. Prior studies provide mixed results on this association, which may be due to differing theoretical expectations related to CSR and firm value. It is also possible that external stakeholders are unable to differentiate between positive and negative CSR investments, as CSR reports are generally not assured by independent third parties. Thus, the authors propose that audit firm tenure may be used by external stakeholders to evaluate CSR performance.\u0000\u0000\u0000Design/methodology/approach\u0000The authors use an ordinary least squares regression to examine the moderating effect of audit firm tenure on the relation between CSR and firm value after controlling for other determinants of firm value and various internal and external governance mechanisms documented in the literature. The sample consists of 15,707 firm-year observations from US firms during the sample period of 2000 to 2012. The authors measure CSR quality using rating scores from MSCI ESG STATS (formerly the KLD database), audit firm tenure as the number of years the incumbent auditor has served the client and firm value using Tobin’s Q.\u0000\u0000\u0000Findings\u0000The results indicate that CSR is positively associated with firm value when audit firm tenure is long but not when tenure is short. The results are robust to alternative measures of firm value, CSR performance scores, and individual CSR dimensions. The evidence supports the argument against mandatory audit firm rotation in the USA.\u0000\u0000\u0000Research limitations/implications\u0000Future studies could examine a similar issue in alternative settings and/or look at cross-sectional variations among firms on the association between CSR and firm value by other auditor traits such as auditor industry specialization and big-name reputation. Additionally, as auditor alone is unable to ensure the quality of management disclosures and their accountability, future studies could examine the moderating effect of internal and other external governance mechanisms on the association between CSR and firm value, exploring when the signaling effect of auditor tenure on CSR reporting quality and its effect on firm value is most salient.\u0000\u0000\u0000Practical implications\u0000The findings are important to regulators and investors. The authors provide evidence that longer audit tenure serves as a signaling device for external investors with regard to the quality of a firm’s CSR performance. Hence, the study facilitates regulators’ cost-benefit analysis related to mandating audit firm rotation. The evidence suggests that mandating a term limit on auditor tenure may have the unintended consequence of eliminating a signaling effect of auditor tenure on the quality of CSR disclosures under information asymmetry. This supports the Public Company Oversight Board’s decision to forgo the requirement of mandatory audit firm rotation in the USA.\u0000\u0000\u0000Originality/","PeriodicalId":47823,"journal":{"name":"Managerial Auditing Journal","volume":" ","pages":""},"PeriodicalIF":2.9,"publicationDate":"2022-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48680780","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Guest editorial: The COVID-19 pandemic: a catalyst for digital transformation","authors":"Abdalmuttaleb Musleh Alsartawi, Mohamed Hegazy, Karim Hegazy","doi":"10.1108/maj-07-2022-024","DOIUrl":"https://doi.org/10.1108/maj-07-2022-024","url":null,"abstract":"","PeriodicalId":47823,"journal":{"name":"Managerial Auditing Journal","volume":" ","pages":""},"PeriodicalIF":2.9,"publicationDate":"2022-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48053251","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-08-22DOI: 10.1108/maj-07-2021-3271
Mohamed Hegazy, Rasha El-Haddad, Noha Mahmoud Kamareldawla
Purpose This paper aims to investigate how auditors’ characteristics affect key audit matters (KAMs) in the new audit report. It also provides an understanding of the effect of the COVID-19 pandemic on different audit reporting decisions and audit quality in specific industries. Design/methodology/approach The paper uses a survey based on actual audit case studies extracted from the management letters of clients in an audit firm with international affiliation to test the proposed hypotheses. Kruskal–Wallis and Mann–Whitney tests are conducted to analyze variance in responses among different groups of auditors regarding their selection of audit report sections required for each audit matter. The Wilcoxon signed rank test analyses difference in the auditors’ responses pre- and post-COVID-19 implications. Findings Most of the developed hypotheses were only partially accepted where industry specialization, professional qualifications of the auditors and the effects of COVID-19 had some effects on the ability of auditors to recognize and disclose KAMs. Auditor position is the most factor that significantly influenced the recognition of KAMs in the new audit report resulting in higher audit quality. This was specially the case with auditors specializing in manufacturing and financial institutions. Originality/value The current research illustrates that during the pandemic, auditors were more effective in recognizing KAMs compared to other audit matters, thus enhancing users’ confidence in both the audit and the financial reporting processes. The results are useful to regulators and auditors as they provide a better understanding of the factors that may impact communicating KAMs in the new audit report under COVID-19.
{"title":"Impact of auditor characteristics and Covid-19 Pandemic on KAMs reporting","authors":"Mohamed Hegazy, Rasha El-Haddad, Noha Mahmoud Kamareldawla","doi":"10.1108/maj-07-2021-3271","DOIUrl":"https://doi.org/10.1108/maj-07-2021-3271","url":null,"abstract":"\u0000Purpose\u0000This paper aims to investigate how auditors’ characteristics affect key audit matters (KAMs) in the new audit report. It also provides an understanding of the effect of the COVID-19 pandemic on different audit reporting decisions and audit quality in specific industries.\u0000\u0000\u0000Design/methodology/approach\u0000The paper uses a survey based on actual audit case studies extracted from the management letters of clients in an audit firm with international affiliation to test the proposed hypotheses. Kruskal–Wallis and Mann–Whitney tests are conducted to analyze variance in responses among different groups of auditors regarding their selection of audit report sections required for each audit matter. The Wilcoxon signed rank test analyses difference in the auditors’ responses pre- and post-COVID-19 implications.\u0000\u0000\u0000Findings\u0000Most of the developed hypotheses were only partially accepted where industry specialization, professional qualifications of the auditors and the effects of COVID-19 had some effects on the ability of auditors to recognize and disclose KAMs. Auditor position is the most factor that significantly influenced the recognition of KAMs in the new audit report resulting in higher audit quality. This was specially the case with auditors specializing in manufacturing and financial institutions.\u0000\u0000\u0000Originality/value\u0000The current research illustrates that during the pandemic, auditors were more effective in recognizing KAMs compared to other audit matters, thus enhancing users’ confidence in both the audit and the financial reporting processes. The results are useful to regulators and auditors as they provide a better understanding of the factors that may impact communicating KAMs in the new audit report under COVID-19.\u0000","PeriodicalId":47823,"journal":{"name":"Managerial Auditing Journal","volume":" ","pages":""},"PeriodicalIF":2.9,"publicationDate":"2022-08-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49589788","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-08-16DOI: 10.1108/maj-10-2021-3353
Wanjiao Jia, Shuoshuo Bi, Yingjie Du
Purpose This study analyses Chinese data to revisit the relationship between directors’ and officers’ (D&O) insurance and accounting conservatism, aiming to investigate the impact of investors’ legal protection on the function of D&O insurance. Design/methodology/approach The study sample included all A-share firms listed on the Shanghai and Shenzhen Stock Exchanges from 2006 to 2019. Multiple regression was used to investigate the association between D&O insurance and accounting conservatism. The Heckman two-stage model and the propensity score matching method were used to check the robustness of the main results. Findings D&O insured companies exhibited greater accounting conservatism. The higher the indemnity limit, the more conservative a firm’s earnings reporting. The positive correlation was stronger when investor protection was relatively weak. The impact of D&O insurance on accounting conservatism was stronger for companies with weaker internal or external supervision mechanisms. Originality/value The study findings show that D&O insurance plays a positive role in the governance of listed companies when investors’ legal protection is weak, which supports the effective supervision hypothesis of D&O insurance.
{"title":"Directors’ and officers’ liability insurance and accounting conservatism: empirical evidence from China","authors":"Wanjiao Jia, Shuoshuo Bi, Yingjie Du","doi":"10.1108/maj-10-2021-3353","DOIUrl":"https://doi.org/10.1108/maj-10-2021-3353","url":null,"abstract":"\u0000Purpose\u0000This study analyses Chinese data to revisit the relationship between directors’ and officers’ (D&O) insurance and accounting conservatism, aiming to investigate the impact of investors’ legal protection on the function of D&O insurance.\u0000\u0000\u0000Design/methodology/approach\u0000The study sample included all A-share firms listed on the Shanghai and Shenzhen Stock Exchanges from 2006 to 2019. Multiple regression was used to investigate the association between D&O insurance and accounting conservatism. The Heckman two-stage model and the propensity score matching method were used to check the robustness of the main results.\u0000\u0000\u0000Findings\u0000D&O insured companies exhibited greater accounting conservatism. The higher the indemnity limit, the more conservative a firm’s earnings reporting. The positive correlation was stronger when investor protection was relatively weak. The impact of D&O insurance on accounting conservatism was stronger for companies with weaker internal or external supervision mechanisms.\u0000\u0000\u0000Originality/value\u0000The study findings show that D&O insurance plays a positive role in the governance of listed companies when investors’ legal protection is weak, which supports the effective supervision hypothesis of D&O insurance.\u0000","PeriodicalId":47823,"journal":{"name":"Managerial Auditing Journal","volume":" ","pages":""},"PeriodicalIF":2.9,"publicationDate":"2022-08-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43386903","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-08-01DOI: 10.1108/maj-09-2020-2857
Brandon Vagner
Purpose The purpose of this study is to explore the effects of personalized task communication and examine auditor willingness to rely on and factor into their judgments and decisions historically accurate internal evidence suggesting a less conservative collectability judgment and audit adjustment decision than unfavorable external and less credible internal evidence. Design/methodology/approach This study uses a 2 × 2 between-subjects experimental design manipulating whether participants receive source credibility insights leading to an evidence set consisting of mixed internal evidence signals, where historically accurate internal evidence suggests either a less conservative or similar collectability signal as unfavorable external evidence; and receive personalized or non-personalized task communication. Findings Through experimental analysis of 103 Big Four audit senior associates, the author found auditors factor into their collectability judgments and audit adjustment decisions historically accurate internal evidence suggesting less conservative collectability judgments and audit adjustment decisions than unfavorable external and less credible internal evidence. The author also found evidence that communication personalization elicits affect and increases effort levels for purposes of improving pre-task information processing and subsequent collectability judgments. The results also indicate that the influence of perceived personalization may not incrementally influence reliance on internal evidence that is consistent with unfavorable external evidence. Originality/value To the best of the author’s knowledge, this is the first study to examine auditor reliance behaviors when internal evidence suggests a less conservative collectability judgment and audit adjustment decision than unfavorable external evidence and is the first to explore communication personalization as a tool for effective audit knowledge transfer.
{"title":"The effect of personalized audit communication and evidence inconsistency on auditor judgments and decision-making","authors":"Brandon Vagner","doi":"10.1108/maj-09-2020-2857","DOIUrl":"https://doi.org/10.1108/maj-09-2020-2857","url":null,"abstract":"\u0000Purpose\u0000The purpose of this study is to explore the effects of personalized task communication and examine auditor willingness to rely on and factor into their judgments and decisions historically accurate internal evidence suggesting a less conservative collectability judgment and audit adjustment decision than unfavorable external and less credible internal evidence.\u0000\u0000\u0000Design/methodology/approach\u0000This study uses a 2 × 2 between-subjects experimental design manipulating whether participants receive source credibility insights leading to an evidence set consisting of mixed internal evidence signals, where historically accurate internal evidence suggests either a less conservative or similar collectability signal as unfavorable external evidence; and receive personalized or non-personalized task communication.\u0000\u0000\u0000Findings\u0000Through experimental analysis of 103 Big Four audit senior associates, the author found auditors factor into their collectability judgments and audit adjustment decisions historically accurate internal evidence suggesting less conservative collectability judgments and audit adjustment decisions than unfavorable external and less credible internal evidence. The author also found evidence that communication personalization elicits affect and increases effort levels for purposes of improving pre-task information processing and subsequent collectability judgments. The results also indicate that the influence of perceived personalization may not incrementally influence reliance on internal evidence that is consistent with unfavorable external evidence.\u0000\u0000\u0000Originality/value\u0000To the best of the author’s knowledge, this is the first study to examine auditor reliance behaviors when internal evidence suggests a less conservative collectability judgment and audit adjustment decision than unfavorable external evidence and is the first to explore communication personalization as a tool for effective audit knowledge transfer.\u0000","PeriodicalId":47823,"journal":{"name":"Managerial Auditing Journal","volume":"1 1","pages":""},"PeriodicalIF":2.9,"publicationDate":"2022-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41654330","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-07-28DOI: 10.1108/maj-05-2021-3146
Tatiana Mazza, S. Azzali, Andrey Simonov
Purpose This study aims to examine whether national industry expertise in Italy is more dominant than local expertise. Prior studies from Australia, USA and UK show that audit fees for industry experts are priced at a higher premium at the local level than the national level. These countries have voluntary audit firm rotation, while Italy has mandatory audit firm rotation (MAFR). The authors predict that Italy has a stronger national than local level of industry expertise, to better retain and transfer industry expertise. Design/methodology/approach The authors compare audit fee premiums of national industry experts to local levels, using quantitative (multivariate tests) and qualitative (interviews) methodology. Findings Using hand-collected audit fees, the authors find that the audit fee premium for industry expertise is greater at the national level than the local level. The authors find corroborating results with audit hours. To provide further support, the authors conduct analysis for a neighboring country that does not have audit firm rotation. Using hand-collected data from Germany, the authors find that audit fee premiums from national industry expertise are no different from local industry expertise. Originality/value The present study study has theoretical and practical implications, for European Union countries, which recently adopted MAFR and for countries considering adoption in the future.
{"title":"Audit fee premium for national and local level of industry expertise in Italy","authors":"Tatiana Mazza, S. Azzali, Andrey Simonov","doi":"10.1108/maj-05-2021-3146","DOIUrl":"https://doi.org/10.1108/maj-05-2021-3146","url":null,"abstract":"\u0000Purpose\u0000This study aims to examine whether national industry expertise in Italy is more dominant than local expertise. Prior studies from Australia, USA and UK show that audit fees for industry experts are priced at a higher premium at the local level than the national level. These countries have voluntary audit firm rotation, while Italy has mandatory audit firm rotation (MAFR). The authors predict that Italy has a stronger national than local level of industry expertise, to better retain and transfer industry expertise.\u0000\u0000\u0000Design/methodology/approach\u0000The authors compare audit fee premiums of national industry experts to local levels, using quantitative (multivariate tests) and qualitative (interviews) methodology.\u0000\u0000\u0000Findings\u0000Using hand-collected audit fees, the authors find that the audit fee premium for industry expertise is greater at the national level than the local level. The authors find corroborating results with audit hours. To provide further support, the authors conduct analysis for a neighboring country that does not have audit firm rotation. Using hand-collected data from Germany, the authors find that audit fee premiums from national industry expertise are no different from local industry expertise.\u0000\u0000\u0000Originality/value\u0000The present study study has theoretical and practical implications, for European Union countries, which recently adopted MAFR and for countries considering adoption in the future.\u0000","PeriodicalId":47823,"journal":{"name":"Managerial Auditing Journal","volume":" ","pages":""},"PeriodicalIF":2.9,"publicationDate":"2022-07-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46397608","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-07-15DOI: 10.1108/maj-05-2020-2684
M. Firoozi, M. Magnan
Purpose This study aims to investigate how audit committee members’ geographical location relative to corporate headquarters affects audit fees. The motivation for the paper rests on the observation that regulatory and market trends have significantly affected the composition of boards of directors and audit committees. To ensure that audit committees play their monitoring role, regulations now require directors’ independence and some level of financial expertise. The need to find directors who meet these requirements, as well as the advent of globalization and technological improvements lead firms to expand their reach when looking for directors. Design/methodology/approach The authors use a sample of 1,517 firm-year observations of Canadian firms from 2008 to 2017. The study relies on multivariate analyses. Findings The results show that, among nonlocal audit committee members, the presence of foreign directors is associated with higher audit fees. In contrast, other nonlocal audit committee members do not have a differential impact on audit fees. This effect is more prevalent in large firms. Moreover, having a foreign chair of the audit committee as well as foreign audit committee members who are not accounting experts appear to accentuate the increase in audit fees. A possible explanation for the finding is that, from the supply side, auditors assign a higher risk to firms with a higher percentage of foreign audit committee members. Alternatively, from the demand side, firms with foreign audit committee members may ask for more audit effort. Further analysis indicates that having a higher percentage of foreign audit committee members is associated with a higher likelihood of restatements, an indication of low audit quality. Originality/value To the best of the authors’ knowledge, this study is the first to document that auditors price the location of audit committee members and consider it when planning for their audit.
{"title":"Audit committee members’ proximity to corporate headquarters and audit fees","authors":"M. Firoozi, M. Magnan","doi":"10.1108/maj-05-2020-2684","DOIUrl":"https://doi.org/10.1108/maj-05-2020-2684","url":null,"abstract":"\u0000Purpose\u0000This study aims to investigate how audit committee members’ geographical location relative to corporate headquarters affects audit fees. The motivation for the paper rests on the observation that regulatory and market trends have significantly affected the composition of boards of directors and audit committees. To ensure that audit committees play their monitoring role, regulations now require directors’ independence and some level of financial expertise. The need to find directors who meet these requirements, as well as the advent of globalization and technological improvements lead firms to expand their reach when looking for directors.\u0000\u0000\u0000Design/methodology/approach\u0000The authors use a sample of 1,517 firm-year observations of Canadian firms from 2008 to 2017. The study relies on multivariate analyses.\u0000\u0000\u0000Findings\u0000The results show that, among nonlocal audit committee members, the presence of foreign directors is associated with higher audit fees. In contrast, other nonlocal audit committee members do not have a differential impact on audit fees. This effect is more prevalent in large firms. Moreover, having a foreign chair of the audit committee as well as foreign audit committee members who are not accounting experts appear to accentuate the increase in audit fees. A possible explanation for the finding is that, from the supply side, auditors assign a higher risk to firms with a higher percentage of foreign audit committee members. Alternatively, from the demand side, firms with foreign audit committee members may ask for more audit effort. Further analysis indicates that having a higher percentage of foreign audit committee members is associated with a higher likelihood of restatements, an indication of low audit quality.\u0000\u0000\u0000Originality/value\u0000To the best of the authors’ knowledge, this study is the first to document that auditors price the location of audit committee members and consider it when planning for their audit.\u0000","PeriodicalId":47823,"journal":{"name":"Managerial Auditing Journal","volume":" ","pages":""},"PeriodicalIF":2.9,"publicationDate":"2022-07-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42391952","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-07-08DOI: 10.1108/maj-01-2022-3431
J. Lv, Shuang Zhang
Purpose The purpose of this study is to examine the impact of chief executive officer (CEO) hometown identity on company audit fees in the Chinese setting. Design/methodology/approach This study uses data from Chinese public companies in the Shanghai Stock Exchange and the Shenzhen Stock Exchange for the period 2008–2019. This study investigates the impact path of CEO hometown identity on company audit fees and further examines the moderating role of internal and external governance level. Findings This study finds that CEO hometown identity is significantly and negatively related to company audit fees. In addition, CEO hometown identity can reduce audit fees by alleviating agency risk and litigation risk. Moreover, the negative effect of CEO hometown identity on audit fees is more pronounced in companies with a higher percentage of institutional investors shareholding and more analysts tracking quantity. Practical implications This study may provide new references for executives’ selection, auditors’ optimization decisions and regulators’ information disclosure system. Originality/value This study contributes to the literature by exploring the effect of CEO hometown identity on audit fees in the context of China.
{"title":"Hometown sentiment: CEO hometown identity and company audit fees","authors":"J. Lv, Shuang Zhang","doi":"10.1108/maj-01-2022-3431","DOIUrl":"https://doi.org/10.1108/maj-01-2022-3431","url":null,"abstract":"\u0000Purpose\u0000The purpose of this study is to examine the impact of chief executive officer (CEO) hometown identity on company audit fees in the Chinese setting.\u0000\u0000\u0000Design/methodology/approach\u0000This study uses data from Chinese public companies in the Shanghai Stock Exchange and the Shenzhen Stock Exchange for the period 2008–2019. This study investigates the impact path of CEO hometown identity on company audit fees and further examines the moderating role of internal and external governance level.\u0000\u0000\u0000Findings\u0000This study finds that CEO hometown identity is significantly and negatively related to company audit fees. In addition, CEO hometown identity can reduce audit fees by alleviating agency risk and litigation risk. Moreover, the negative effect of CEO hometown identity on audit fees is more pronounced in companies with a higher percentage of institutional investors shareholding and more analysts tracking quantity.\u0000\u0000\u0000Practical implications\u0000This study may provide new references for executives’ selection, auditors’ optimization decisions and regulators’ information disclosure system.\u0000\u0000\u0000Originality/value\u0000This study contributes to the literature by exploring the effect of CEO hometown identity on audit fees in the context of China.\u0000","PeriodicalId":47823,"journal":{"name":"Managerial Auditing Journal","volume":" ","pages":""},"PeriodicalIF":2.9,"publicationDate":"2022-07-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46635093","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-06-27DOI: 10.1108/maj-06-2021-3206
Ammad Ahmed, Sumit Dhull, R. Kent
Purpose The purpose of this study is to examine the association between non-audit service fees provided by the auditor and auditor independence in stable and unstable economic conditions. Further, this study investigates whether client importance impairs auditor independence in two different Australian economic environments. Design/methodology/approach This study focuses on financially distressed firms listed on the Australian Stock Exchange from 2005 to 2014. The data is obtained from SIRCA and the Morning Star databases. The probit method is used as a baseline regression model, the two-stage least squares and the sensitivity of control variable tests are used to control for any endogeneity and self-selection bias concerns. Findings This study shows that in stable economic conditions, non-audit service fees provided by auditors impair auditor independence. This suggests that economic bonding between auditor and client serves as a threat to the auditor’s independence, perhaps because of the importance given to the larger clients. In contrast, the authors find no association between non-audit service fees and auditor independence in unstable (highly regulated) economic conditions largely because of higher litigation risk. The results of this study are robust to alternative model specifications and endogeneity concerns. Practical implications This study provides an important implication to regulators that macro-economic conditions influence the strength of incentives related to non-audit services for auditors. Furthermore, this study enhances the understanding of regulators (Australian Security Investment Commission) and the strategies adopted by Australian auditors in response to economic incentives and market-based incentives. Originality/value The authors contribute to the existing literature by providing evidence that there is a tradeoff between market-based incentives (i.e. lower litigation costs) and economic incentives (i.e. non-audit services fees) with economic uncertainty influencing the importance of these incentives to auditors.
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