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The Association between Audit Fees and the Ownership Structure
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- Authors
- Issue Date
- 2007-12
- Citation
- Seoul Journal of Business, Vol.13 No.2, pp. 83-103
- Keywords
- audit fees ; cash flow right ; voting right ; ownership structure
- Abstract
- This study examines the association between ownership structure and
audit fess. Especially, this study focuses on the ownership structure
measured by the divergence of control and ownership. If an owner owns
a company through the pyramidal structure, it is possible that the
voting rights of the owner are greater than the cash flow rights of the
same owner. The difference could influence the firms audit-related policy and auditors behavior. This study examines this issue by
focusing on audit fees.
Using 436 firm-year observations collected over 2003-2005 period
from Korean stock market and the divergence data provided by Korea
Fair Trade Commission, we examine above prediction. The empirical
results reveal that the audit fee is negatively correlated with the
divergence. It suggests that the audit quality is lower when there exist
greater divergence. It is because the divergence is related to the
incentive for owners to expropriate minority shareholders. In order to
hide the expropriation from outside minority shareholders, it is possible
that the owner asks the auditor to provide low quality audit service
which in turn results in low audit fees.
- ISSN
- 1226-9816
- Language
- English
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