The Association between Audit Fees and the Ownership Structure

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College of Business Administration (경영대학)
Seoul Journal of Business, Vol.13 No.2, pp. 83-103
audit feescash flow rightvoting rightownership structure
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.
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College of Business Administration/Business School (경영대학/대학원)Dept. of Business Administration (경영학과)Seoul Journal of Business (SJB)Seoul Journal of Business Volume 13, Number 1/2 (2007)
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