Purpose
This study aims to examine the mediating effect of board independence on the relationship between ownership structure and audit quality.
Design/methodology/approach
The research uses generalized methods of moments regression to test the relationship between ownership structure and audit quality. The sample consists of 162 non-financial firms listed on the Gulf Cooperation Council stock markets between the years of 2009 and 2016. To test the significance of the mediating effect, this paper uses the Sobel test.
Findings
Empirical findings show that companies with higher family ownership are less likely to demand extensive audit services and, as a result, pay lower audit fees. Conversely, this study finds that companies with higher active and passive institutional ownership are more likely to engage high-quality auditors and pay larger audit fees. As for government ownership, it has no significant impact on audit fees. The results also reveal that the negative (positive) effect of family (institutional) ownership on audit quality follows the path through reducing (enhancing) board independence. Further tests are conducted and support the main findings.
Practical implications
This study has important implications for policymakers and regulators to address the conflict between controlling shareholders and minorities by promoting higher standards of audit quality. The study findings may be useful to investors, assisting them in making better-informed decisions and aids other interested parties in gaining a better understanding of the role played by ownership structure in audit quality. The study also contributes to the strategic board behavior by bringing a new perspective on how boards engage in monitoring by requesting external audit services. This behavior is likely to be influenced by the type of controlling shareholder.
Originality/value
The main contribution of the present paper is to examine the board composition as a potential mediating variable between ownership structure and audit quality. Moreover, it highlights the issue of improving governance mechanisms.
Purpose
This paper aims to investigate the effect that ownership structure (public vs private) has on the demand for high-quality auditors, specifically in the US banking industry.
Design/methodology/approach
The authors predict that public banks are more likely to hire a high-quality auditor than private banks and pay a higher audit fee premium for that high-quality auditor (due to higher agency costs, more demand for financial information and higher litigation risk). The authors analyze 2008–2014 banking data from the Federal Reserve using probit and OLS regression analysis to examine if there is a higher probability that public banks choose higher quality auditors and pay higher audit fees when they do so.
Findings
The results show that private banks are less likely to hire Big 4 auditors and industry-expert auditors than public banks. The authors also find that both private and public banks pay higher audit fees for Big 4 and industry-expert auditors, and that public banks pay a higher premium for Big 4 auditors and industry experts than private banks.
Research limitations/implications
The findings may not be fully generalizable to other types of firms, as banking is a heavily regulated and complex industry. However, inferences from this study may be generalizable to other similar industries such as insurance or health care.
Practical implications
The results of this paper imply that public and private banks have differing priorities when hiring their financial statement auditor. This may be of interest to investors and auditing regulators.
Social implications
The findings of this paper underscore the value of hiring an industry-expert auditor in an industry that is highly complex and regulated. This may be of interest to managers and policymakers.
Originality/value
Due to data restrictions, the emphasis of prior literature on the banking industry has been on public banks. This study is the first to analyze the differences between public and private banks’ demand for audit services.
This study aims to identify whether there is a relationship between dual
class shares issuance, pyramidal ownership structure and firms’ financial
performance in the Brazilian market. To this end, univariate tests and panel
data analysis were applied in a sample for the 2000 to 2012 period. The
results indicate that there is a significant and negative relationship
between dual class shares issuance and firm’s financial performance,
regardless of whether there is a pyramidal ownership structure in firm. In
other hand, we find positive effects from pyramidal structure on the firm’s
financial performance, conditioned that there is no dual class shares
issuance, and also on the absence of an excessive number of levels until the
ultimate controlling shareholder in the pyramidal structure. These evidences
suggest that the voting power matters to improve firms’ financial
performance; and that there are benefits and costs from pyramidal ownership
structure in Brazilian firms.
SUMMARY
This paper investigates whether auditors' client acceptance and pricing decisions following the resignation of the incumbent auditor in family firms are significantly different from those in non-family firms. Relying on the auditing literature (client acceptance and audit pricing) and using insights from the agency theory, we document that successor auditors incorporate a firm's ownership structure into their acceptance and pricing decisions following the resignation of the incumbent auditor. Big 4 auditors are more likely to serve as successor auditors following auditor resignations in family firms as opposed to non-family firms. The changes in audit fees following auditor resignations in family firms, however, are significantly smaller than those in non-family firms. These results hold when we account for whether a family firm is managed by a founder, a descendant, or by a professional manager, and when we use the percentage of shares held by the family members as another proxy for family ownership. Additional analysis further demonstrates that the likelihood of financial restatements in family firms in the post-resignation period are significantly lower than those in non-family firms. Overall, our findings suggest that Big 4 auditors perceive family firms from which the incumbent auditors resigned as being less risky than their non-family counterparts.
The research to examine the effects of ownership structures on financing policies and firm valuation. The populations are all listed companies in Indonesia Stock Exchange for period of 2013 and 2015. The sample selection technique used purposive sampling and resulting in a final sample of 72 listed firms. Empirical tests are conducted using multiple regressions and two stages least squares regression to test the simultaneous relationship between ownership structure, financing policies and firm value. The estimated results provide support for the hypotheses proposed that the separation of cash flow rights and control rights have led the use of excess leverage among pyramidal companies to preserve ultimate owner’s control. However, we failed to find a significant relationship between firm’s leverage and firm’s value. The conclusion is the simultaneounity relation between ownership structure, leverage and firm value appear that only the ownership structure significantly related with leverage and firm value. Also firm value and leverage ownership impact the ownership structure. Meanwhile, leverage does not appear to have a significant relation with the firm value, or the other way around.
According to the institution-based view of corporate governance, firm-governance efficiency is influenced by the institutional environment in which the firm operates. In this study, we examine how firms under a family-governance system adapted to institutional reforms over time. The results of the analysis indicate that institutional reforms reduce firm dependence on family governance and eliminate the negative effects on performance exerted by a controlling family’s pyramidal ownership structure. We also find that institutional reforms foster external corporate governance by domestic institutional investors. In conclusion, our study shows that institutional reforms alter the essence of family firm governance.
Purpose
The purpose of this paper is to investigate the association between ownership structure and the properties of analysts’ forecasts in China’s unique corporate setting.
Design/methodology/approach
Multiple regression models were used to examine the influence of ownership structure mechanisms on analysts’ forecast properties for listed Chinese firms during the period 2008-2012.
Findings
The paper finds that analysts’ forecast accuracy is higher for listed firms with high levels of foreign ownership and managerial ownership. However, the complex pyramidal ownership structure could make corporate information less transparent and then increase the complexity of forecasting; hence, it results in less precise analysts’ forecasts. Interestingly, the relationship between state ownership and analysts’ forecast properties appears to be non-linear (an inverted U-shape), and the inflection point at which the relationship becomes negative occurs at state ownership over 45 per cent.
Originality/value
To the best of the author’s knowledge, this paper is the first to investigate the influence of ownership structure mechanisms on the properties of analysts’ forecasts in an emerging market, and the findings provide some insight on how the properties of analysts’ forecast might be shaped by certain ownership and control features in the context of concentrated state ownership and complex pyramidal ownership structure.
Pyramidal Ownership Structure and the Sensitivity of Investment to Cash Flows