Auditor liability and excess cash holdings: Evidence from audit fees of foreign incorporated firms

We examine auditor business risk by analyzing the relation between excess cash holdings and auditor pricing behavior. Prior research links excess cash holdings to risks associated with manager opportunism and external monitoring. Our analyses provide evidence of a positive relationship between excess cash and audit fees. The economic magnitude of the increase in total audit fees due to an increase in excess cash holdings is approximately 5% greater for firms in the top quartile of excess cash holdings versus those in the bottom quartile. We also find that the strength of shareholder rights reduces the positive relationship between excess cash and audit fees, and excess cash holdings are assigned lower audit fees among firms that follow an investment-intensive strategy than those that tend to hold on to their cash. Our article contributes to the literature by examining auditor pricing of excess cash holdings, including factors that affect auditors’ risk perceptions, and ultimately provides unique insights into how auditors view agency conflicts indicated by excess cash holdings.

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Excess Cash Holdings and Audit Fees

Journal of Finance & Knowledge Studies ◽

10.38200/jfks.17.2.4 ◽

2019 ◽

Vol 17 (2) ◽

pp. 93-117

Author(s):

Sang Cheol Lee ◽

Jaemin Lim

Keyword(s):

Cash Holdings ◽

Audit Fees ◽

Excess Cash

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The role of business group in mitigating agency theory caused by excess cash holdings

The Future Opportunities and Challenges of Business in Digital Era 4.0 ◽

10.1201/9780367853778-81 ◽

2020 ◽

pp. 310-313

Author(s):

Nindytia Puspitasari Dalimunthe ◽

Mutiasari Nur Wulan ◽

Sipa Paujiah

Keyword(s):

Agency Theory ◽

Cash Holdings ◽

Business Group ◽

Excess Cash

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Family Control And The Value Of Cash Holdings

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v31i2.9159 ◽

2015 ◽

Vol 31 (2) ◽

pp. 647 ◽

Cited By ~ 1

Author(s):

Sabri Boubaker ◽

Imen Derouiche ◽

Majdi Hassen

Keyword(s):

Firm Value ◽

Family Firms ◽

Cash Holdings ◽

Firm Resources ◽

Family Control ◽

Large Sample ◽

Listed Firms ◽

Excess Cash ◽

Cash Reserves ◽

Corporate Cash Holdings

The present study investigates the effects of family control on the value of corporate cash holdings. Using a large sample of French listed firms, the results show that the value of excess cash reserves is lower in family firms than in other firms, reflecting investors concern about the potential misuse of cash by controlling families. We also find that the value of excess cash is lower when controlling families are involved in management and when they maintain a grip on control, indicating that investors do not expect the efficient use of cash in these firms. Our findings are consistent with the argument that the extent to which excess cash contributes to firm value is lower when dominant shareholders are likely to expropriate firm resources. Overall, family control seems to be a key determinant of cash valuation when ownership is concentrated.

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The effect of managerial horizon on cash holdings

Managerial Finance ◽

10.1108/mf-09-2018-0442 ◽

2019 ◽

Vol 45 (8) ◽

pp. 1092-1110

Author(s):

Sanjib Guha ◽

Niazur Rahim

Keyword(s):

Design Methodology ◽

Cash Holdings ◽

Previous Literature ◽

Cash Holding ◽

Firm Characteristics ◽

Current Compensation ◽

Content Type ◽

Ceo Age ◽

Excess Cash ◽

Managerial Horizon

Purpose US corporations are now sitting on an enormous stockpile of cash. Instead of investing their resources and creating jobs, the firms are holding on to excess cash. Academicians and practitioners alike have tried to fathom the reasons why companies are holding on to so much cash. Numerous studies have talked about the various motives for holding cash. Many researchers have tried to correlate excess cash holding with particular firm characteristics. The purpose of this paper is to study the correlations that exist between excess cash holding and some measurable managerial characteristics. Design/methodology/approach Four different measures of managerial horizon (MH) were constructed. The first two constructs (MH1 and MH2) are based on the CEO’s age and how long he has been the CEO of the company. The next two constructs (MH3 and MH4) are based on compensation, proportion of current compensation and proportion of future compensation. This paper tries to examine if MH has any impact on excess cash holding. Findings The results clearly show that the CEO age and the proportion of CEO’s compensation (current and future) do determine level of cash holding in the company. Younger CEOs hold more cash compared to older CEOs. Older CEOs hold less cash suggesting that as CEOs grow older they might be motivated by the idea of leaving a long lasting legacy. CEOs who receive more of their compensation in future payments also hold on to more cash, whereas CEOs who receive more of their compensation in current payments hold less cash. Originality/value There is no previous literature dealing with MH and cash holding by corporations.

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The Effects of the Extant Clauses Limiting Auditor Liability on Audit Fees and Overall Reporting Quality

Journal of Empirical Legal Studies ◽

10.1111/jels.12218 ◽

2019 ◽

Vol 16 (2) ◽

pp. 381-410 ◽

Cited By ~ 1

Author(s):

Henock Louis ◽

Thomas C. Pearson ◽

Dahlia M. Robinson ◽

Michael N. Robinson ◽

Amy X. Sun

Keyword(s):

Reporting Quality ◽

Audit Fees ◽

Auditor Liability

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The Impact of Corporate Governance Mechanisms on the Relationship Between Cash Holdings and Audit Fees in Egyptian Listed Companies

International Journal of Accounting and Financial Reporting ◽

10.5296/ijafr.v9i2.14742 ◽

2019 ◽

Vol 9 (2) ◽

pp. 314

Author(s):

Eman Abdel-Wanis

Keyword(s):

Corporate Governance ◽

Audit Committee ◽

Panel Data Analysis ◽

Cash Holdings ◽

Audit Fees ◽

Governance Mechanisms ◽

Listed Firms ◽

Corporate Governance Mechanisms ◽

The Impact ◽

The Relationship

This paper explores the impact of corporate governance mechanisms on the nature of the relationship between cash holdings and audit fees, which helps provide an opportunity to identify whether these mechanisms enable to mitigate agency problems, and thus lower audit fees through a sample of 78 Egyptian listed firms in EGX 100 during the period 2014-2016 using panel data analysis. Results indicated that cash holding increases auditing fees. The board characteristics affect negatively on the relationship between cash holdings and audit fees. Also, ownership structure affects negatively on the relationship between cash holdings and audit fees. As well audit committee affects negatively on the relationship between cash holdings and audit fees. There results support the view that corporate governance mitigate on the relationship between cash holdings and audit fees.

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Why Do Cities Hoard Cash? Determinants and Implications of Municipal Cash Holdings

The Accounting Review ◽

10.2308/accr.2009.84.1.183 ◽

2009 ◽

Vol 84 (1) ◽

pp. 183-207 ◽

Cited By ~ 41

Author(s):

Angela K. Gore

Keyword(s):

Cash Holdings ◽

Agency Problems ◽

City Manager ◽

State Revenue ◽

Excess Cash ◽

Administrative Expenses ◽

Manager Incentives

ABSTRACT: This study examines the determinants of municipal cash holdings and the implications of holding high levels of cash. The first part of the analysis investigates municipal manager incentives to accumulate cash as part of normal operations. Results indicate that municipalities with a higher variation in revenues, fewer sources of revenues, and higher growth accumulate more cash. Larger governments and those receiving relatively more state revenue accumulate less cash. Further analysis considers whether high levels of cash indicate agency problems, and finds municipalities with high cash holdings spend more on administrative expenses, city manager salaries, and bonuses. I find no evidence that municipalities with excess cash reduce taxes. The presence of staggered councils and councils that are not independent tend to exacerbate excessive cash holdings. These results are consistent with the proposition that municipalities with high cash levels have agency problems relative to those with lower cash holdings.

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