Les Cahiers de Recherche - HEC Paris
ownership concentration and audit fees: do auditors matter most when investors are protected least ?
() and Chiraz Ben Ali
Abstract: Author's abstract. This study examines whether auditors
are employed as a monitoring mechanism to mitigate agency problems between
controlling shareholders and minority shareholders (named Type II agency
conflict). In a context of ownership concentration and poor investor
protection, controlling shareholders can easily expropriate minority
shareholders and profit from private benefits of control. However, this
agency conflict has been rarely studied, as the most commonly assumed
agency conflict resides between managers and shareholders (Type I). Using
an audit fees model derived from Simunic (1980), we study the impact of
type I and type II agency conflicts on audit fees in high vs. low investor
We then focus on two countries (Germany and
France) providing a lower investor protection level, and two countries (the
USA and UK) providing a higher investor protection level (La Porta et al.
1998, 2000). Our results show : 1) a negative relation between audit fees
and managerial shareholding, which is stronger for strong than for low
investor protection countries;
2) a curvilinear (concave) relation
between audit fees and controlling shareholding for low investor protection
3) a lower Type II conflict in the strong investor protection
countries. These results illustrate the mixed effects of the legal
environment and both agency conflicts on audit fees.
Keywords: audit fees; controlling shareholder; minority expropriation; agency conflict; (follow links to similar papers)
38 pages, July 1, 2011
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