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The Effect of Divergence between Cash Flow Right and Voting Right on Audit Hour and Audit Fee per Audit Hour
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- Authors
- Issue Date
- 2008-06
- Citation
- Seoul Journal of Business, Vol.14 No.1, pp. 55-77
- Keywords
- ownership divergence ; audit hour ; audit fee per audit hour ; cash flow rights ; voting rights
- Abstract
- This study examines the association between ownership structure of
client firms measured by the divergence between cash flow rights and
voting rights, and audit hour and audit fee per audit hour. Auditors could spend more audit hours or increase the audit fees per audit hour
for the risky firms which have greater divergence between cash flow
right and voting right. Using 436 firm-year observations collected over
2003~2005 period from Korean stock market, we investigate this
relationship. The empirical results reveal that the audit hour increases
as the divergence increases. However, there is a great difference in the
empirical results depending on the firm size. Although small firms show
the positive association between the divergence and audit hour, large
firms reveal the negative association between the two. In addition, there
is no change in the hourly audit fee rate for total sample and small firm
samples. In contrast, the hourly fee rate increases as divergence
increases for the large firm sample. In summary, auditors increase
hourly fee rate but decrease audit hour as the divergence of large firms
increases. These findings are very interesting and provide new insights
to regulators, academics, as well as practitioners.
- ISSN
- 1226-9816
- Language
- English
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