The impact of fair value estimates on audit fees: evidence from the financial sector in Jordan

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Rateb Mohammad Alqatamin ◽  
Ernest Ezeani
Keyword(s):  
Positive Relationship ◽  
Stock Exchange ◽  
Random Effect ◽  
Audit Fees ◽  
Fair Value ◽  
Financial Information ◽  
Content Type ◽  
External Auditors ◽  
The Right ◽  
The Impact

PurposeThis study investigates the association between the estimates of fair value and external auditor's fees.Design/methodology/approachBased on a sample of 32 Jordanian financial companies listed on the Amman Stock Exchange (ASE) over the period 2005–2018. We employ random effect models to test our hypothesis.FindingsWe found a positive relationship between audit fees and the proportion of fair value assets, which implies that external auditors are more likely to spend more effort for complex estimates, thereby increasing audit fees. We examined the relationship between audit fees and three levels of fair value inputs and found a positive relationship between the level of effort spent on assessment of higher uncertainty fair value inputs and audit fees. The findings are consistent with the expectation that more audit effort is required in a highly regulated environment due to the possibility of a higher cost of litigation.Practical implicationsThe findings of this study could be beneficial for a number of users of financial information, such as investors, regulators, auditors. This group of users might consider the results of this study when they are using a company's financial information, and consequently, better able to make the right decisions.Originality/valueAlthough prior studies have researched fair value, no study to date among developing countries has investigated its relationship with audit fees. This study, therefore, provides new empirical evidence that the complexity and risk of fair value estimates significantly influences auditors' motivation to expend additional effort, resulting in higher audit cost.

The impact of changes in cash flow statement items on audit fees: evidence from Iran

2020 ◽  
Vol 18 (2) ◽  
pp. 225-249
Author(s):  
Mahdi Salehi ◽  
Masoumeh BehrouziYekta ◽  
Hossein Rezaei Ranjbar
Keyword(s):  
Cash Flow ◽  
Design Methodology ◽  
Stock Exchange ◽  
Audit Fees ◽  
Financial Information ◽  
Accurate Estimation ◽  
Optimal Size ◽  
Content Type ◽  
Optimal Amount ◽  
The Impact

Purpose The purpose of this study is to determine whether the incremental difference between the actual level of cash from the optimal amount (excess and insufficient cash) to the abnormal amount of cash (abnormal positive and negative changes in cash) leads to an increase in audit fees. Design/methodology/approach To investigate the main purpose of this study, first, the authors, respectively, estimate the optimal cash flow and the normal (optimal) changes in cash by Oler and Picconi (2014) and Bates, Kahle and Stulz (2009) models for each period. In this regard, financial information of 116 companies listed on the Tehran Stock Exchange is selected during the period 2011-2016. Findings The results of this investigation indicate that holding an excessive amount of cash than optimal size and audit fees are negatively associated. Moreover, it is documented that abnormal changes in cash flow and audit fees are not significantly associated. Originality/value The outcomes of the current study contribute to providing an accurate estimation to determine audit fees in emerging markets.

The impact of research and development and marketing costs on the profitability of pharmaceutical companies of Tehran Stock Exchange using panel data 2001-2013

2016 ◽  
Vol 10 (4) ◽  
pp. 467-476 ◽  
Author(s):  
Yahya Bayazidi ◽  
Enayatollah Homaie Rad ◽  
Mehdi Mojahedian ◽  
Mehdi Toroski ◽  
Azita Nabizadeh ◽  
...  
Keyword(s):  
Panel Data ◽  
Research And Development ◽  
Stock Exchange ◽  
Random Effect ◽  
Patent Law ◽  
Pharmaceutical Companies ◽  
Content Type ◽  
Marketing Costs ◽  
The Impact ◽  
D Investment

Purpose The main aim of this study is to investigate the effects of marketing and costs and research and development (R&D) investments on profitability of pharmaceutical companies of Iran. Design/methodology/approach In this study, pharmaceutical companies that have been accepted in Tehran Stock Exchange until March 19, 2013 were investigated. Random-effect panel data estimator was used for this purpose. Findings The findings indicate that variables such as company size, capital-to-total asset ratio and debt-to-asset ratio have an effect on profitability. But, company life, advertising cost and R&D investment are ineffective on profitability. Originality/value Legal issues like not having patent law and pricing mechanism are reasons for the ineffective relationship between R&D and marketing costs and its effect on profitability of the Iran pharmaceutical industry.

The effect of mandatory XBRL and IFRS adoption on audit fees

2016 ◽  
Vol 12 (2) ◽  
pp. 109-135 ◽  
Author(s):  
Yuan George Shan ◽  
Indrit Troshani
Keyword(s):  
Financial Reporting ◽  
Developing Economies ◽  
Stock Exchange ◽  
Audit Fees ◽  
Listed Companies ◽  
Emerging Economy ◽  
Economic Consequences ◽  
Content Type ◽  
Ifrs Adoption ◽  
The Impact

Purpose – The purpose of this paper is to evaluate the impact of the International Financial Reporting Standards (IFRS) and eXtensible Business Reporting Language (XBRL) on audit fees based on evidence from listed companies operating in an emerging economy. Whilst IFRS constitute high-quality accounting standards, XBRL represents a technology standard that can enhance the usability of IFRS and overall financial reporting transparency. Design/methodology/approach – Multivariate analyses are used on a sample of 1,798 firm-year observations between 2000 and 2011 from companies listed in the Shanghai Stock Exchange that were subject to XBRL and IFRS adoption mandates. Findings – The main results suggest that XBRL has a main negative effect on audit fees which is weaker for larger firms. Additionally, the authors find that IFRS increases audit fees for all companies. Whilst this effect is positive for firms of different sizes, it is weaker for larger firms. Research limitations/implications – Whilst the findings are applicable to the selected sample and may or may not be generaliseable to other economies, they can provide important implications for both regulators and companies that are undertaking IFRS convergence and XBRL implementation projects in developing economies around the world. Originality/value – This study offers a timely assessment of the economic consequences of IFRS and XBRL on listed companies operating in an emerging economy, in addition to providing an important basis upon which further research can be designed in order to extend the analysis.

Stock mispricing and investment decisions: evidence from Pakistan

2018 ◽  
Vol 16 (4) ◽  
pp. 725-741
Author(s):  
Usman Muhammad ◽  
Sana Saleem ◽  
Anwar ul Haq Muhammad ◽  
Faiq Mahmood
Keyword(s):  
Stock Exchange ◽  
Random Effect ◽  
Investment Decisions ◽  
Corporate Investment ◽  
Capital Expenditures ◽  
Content Type ◽  
Financial Firms ◽  
Stock Mispricing ◽  
The Impact

Purpose This study aims to examine the impact of stock mispricing on corporate investment decisions by taking the sample of non-financial firms listed on the Pakistan Stock Exchange during the period of 2008-2014. Design/methodology/approach To measure the mispricing, this study decomposes the market-to-book ratio into mispricing and growth components and measures corporate investment by capital expenditures. Fixed and random effect panel regression models are used to estimate the results. Findings Results of the study show that firms issue overvalued equity to finance the capital expenditures. Consistent with other studies, the relationship between stock mispricing and investment is more prominent in the financially constrained firms. In addition, cash flow investment sensitivity is higher in financially unconstrained firms. Practical implications Nonetheless, the results give important implications to the Pakistan Stock Market on how the mispricing enhances the welfare by relaxing the financial constraints and allowing the managers to make investment in profitable projects that otherwise go non-funded. These findings have interesting implications for further research in the literature of finance and also help in economic policy-making. Originality/value This study finds the impact of stock mispricing on corporate investment decisions by considering the role of market timing in the context of Pakistan.

Corporate CAPEX and market capitalization of firms on Malawi stock exchange: an empirical study

2018 ◽  
Vol 16 (1) ◽  
pp. 108-119 ◽  
Author(s):  
Byson Beracah Majanga
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Positive Relationship ◽  
Capital Expenditure ◽  
Stock Exchange ◽  
Panel Data Analysis ◽  
Historical Study ◽  
Content Type ◽  
Market Capitalization ◽  
The Impact

Purpose Market capitalization of firms reflects the current value of a firm and provides a reasonable basis on mergers and acquisition bargains. Determinants of a firm’s increasing or decreasing market capitalization are multi-faceted, hence the study. The paper is about a historical study of the responsiveness of common share prices of some listed industrial companies to the firms’ investments in capital expenditure. This study aims to discuss the impact of capital expenditure on a firm’s market capitalization, with a focus on companies listed on the Malawi stock exchange (MSE). Design/methodology/approach The study reviews data collected from published annual reports for the years from 2007 to 2015. The variations in capital expenditure (CAPEX) which are termed “increase” or “decrease” were studied to establish their association with variations in stock prices before the increase or decrease, and after the increase or decrease. As stock price changes are caused by other determinants, the variables of return on capital employed (ROCE), net profit margin (NPM), asset turnover (ATO) and earnings retention ratio (ERT) were analyzed, and a respective correlation test was done against CAPEX movement over the years through panel data analysis and regression analysis to establish the correlation between the variables using XLSTAT. Findings At 95 per cent confidence level, CAPEX correlates with ROCE and NPM at 0.373 and 0.249 coefficients, respectively, and negatively with ERT at 6.45e-2. With tests favoring a positive relationship between elements of profitability and stock price, the study finds that there is a positive relationship between a firm’s CAPEXs and its future stock prices. Research limitations/implications The firm’s commitment to CAPEX has a positive impact on its stock price on the stock exchange. These findings, however, need to be interpreted with caution as the data reviewed excluded that from financial institutions, the inclusion of which may affect the outcome, and that the data are derived from a small and young stock market which may be lacking in its efficiency compared to the old and big ones the world over. Originality/value The study was undertaken based on the study of listed companies on the Malawi Stock Exchange, and the results may or may not reflect the reality on the ground in other stock exchanges.

The impact of financial crisis on audit quality and audit fee stickiness: evidence from Iran

2019 ◽  
Vol 17 (2) ◽  
pp. 201-221 ◽  
Author(s):  
Mahdi Salehi ◽  
Farzaneh Komeili ◽  
Ali Daemi Gah
Keyword(s):  
Financial Crisis ◽  
Audit Quality ◽  
Stock Exchange ◽  
Emerging Market ◽  
Audit Fees ◽  
Influential Factors ◽  
Industry Specialization ◽  
Content Type ◽  
Random Effects Models ◽  
The Impact

Purpose There is a few studies about stickiness and changes in audit fees. In previous studies, researchers focused on fees behavior, which is expected to change in the short term, regardless of mentioning stickiness of fees and its possible changes. In this study, the authors investigate stickiness of audit fees and the influential factors, specifically audit quality and financial crisis in an emerging economy. Design/methodology/approach Audit quality is examined under three main criteria, namely, auditor size, auditor industry specialization and auditor tenure. The Altman adjusted bankruptcy model is used to identify firms’ financial crisis. In this study, listed companies in Tehran stock exchange market is investigated during the period of 2009-2015. Multiple regression models are used to test research hypotheses. Furthermore, Chow and Hausman tests are selected to choose among hybrid, fixed and random effects models. Findings The findings show no significant relationship between audit quality and audit fees stickiness. The authors also find that financial crisis has no impact on the association between audit quality and audit fees stickiness. Originality/value The current study almost is the first study, which conducted in emerging market of Iran. So, the results may play a helpful role for developing nations.

Overlapping membership on audit and compensation committees, equity holdings of overlapping members and audit outcomes

2018 ◽  
Vol 31 (4) ◽  
pp. 509-530 ◽  
Author(s):  
Ahsan Habib ◽  
Md. Borhan Uddin Bhuiyan
Keyword(s):  
Audit Committee ◽  
Good Governance ◽  
Audit Fees ◽  
Content Type ◽  
Compensation Committee ◽  
External Auditors ◽  
Audit Opinions ◽  
The Impact ◽  
Compensation Committees ◽  
Equity Holdings

PurposeThis paper aims to examine the question of whether external auditors incorporate equity holdings by overlapping audit committee members as a priced governance factor and tests whether this attribute, as a mechanism for ensuring good governance, affects the propensity for external auditors to issue modified audit opinions.Design/methodology/approachOverlapping membership in this context refers to the arrangement where at least one audit committee member also sits on the compensation committee. Both ordinarily least square and logistic regression are used to capture the impact of overlapping committee members and equity holding of those overlapping committee members.FindingsUsing archival data from Australian Stock Exchange listed companies, the authors find support for the beneficial effect of having overlapping audit committee members with equity holdings. The authors also find that auditor propensity to issue modified audit opinions is lower for firms with equity holdings by overlapping audit committee members.Practical implicationsThe finding has practical implication to the investors and regulators as overlapping audit committee members with equity holdings may provide especially effective oversight by monitoring opportunistic accounting policy choices for maximizing compensation pay. To the extent that this occurs, audit risk will decrease, requiring less audit effort and lower audit fees than would otherwise be necessary. Similarly, such oversight is likely to make financial reporting more credible and will reduce the possibility of receiving modified audit opinions by reporting organizations.Originality/valueBoth audit and compensation committees are equally important in modern organizations. While both of the committee have distinctive responsibilities, questions remain on the desirability of overlapping audit committee. Also, this is the first study to the authors’ knowledge that incorporates overlapping membership on audit and compensation committee as an important component of auditor risk perception which regards in pricing the audit fees.

Disinvestment in Indian central public sector enterprises: a performance improvement measure

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Priya Mandiratta ◽  
G.S. Bhalla
Keyword(s):  
Public Sector ◽  
Stock Market ◽  
Stock Exchange ◽  
Random Effect ◽  
Market Mechanism ◽  
Rank Test ◽  
Net Income ◽  
Content Type ◽  
Negative Results ◽  
The Impact

PurposeThe purpose of this study is to represent an attempt to empirically capture the impact of disinvestment on the financial and operating performance of 26 Bombay Stock Exchange (BSE) listed central public sector enterprises (CPSEs) in India which got divested through stock market mechanism during the time period of 2000–2014.Design/methodology/approachThrough ratio analysis different ratios such as return on assets, return on equity, net income efficiency, debt equity, dividend payout and employment levels have been computed. Pre- and post disinvestment performance of these firms is examined through Wilcoxon signed-rank test. The present research endeavors to examine the impact of disinvestment through random effect panel data models in order to control the effect of other firm specific variables.FindingsThe overall results of the study indicate statistically significant fall in profitability ratios. The empirical results have not witnessed positive effect of disinvestment on the profitability of the CPSEs; rather, this effect has found to be negative. The possible reasons behind these negative results could be poor pre disinvestment financial health of CPSEs, negative rate of return on capital employed by PSEs and inefficiency which need to be tested empirically by future researchers.Originality/valueThe fact that government-owned firms are typically less proficient or at least less gainful than private-owned firms is widely hypothesized. Therefore, the disinvestment policy aims at dropping the participation of the public sector in the economic actions of the country in order to support the private sector. The present study is a first of its kind to study the impact of disinvestment on the profitability of the firms, which got divested through stock market mechanism since the year 2000 by applying both univariate and multivariate analysis.

The performance of the Broad Based Black Economic Empowerment compliant listed property firms in South Africa

2016 ◽  
Vol 34 (1) ◽  
pp. 3-26 ◽  
Author(s):  
Omokolade Akinsomi ◽  
Katlego Kola ◽  
Thembelihle Ndlovu ◽  
Millicent Motloung
Keyword(s):  
Stock Returns ◽  
Factor Model ◽  
Stock Exchange ◽  
Sharpe Ratio ◽  
Economic Empowerment ◽  
Content Type ◽  
Black Economic ◽  
Black Economic Empowerment ◽  
The Government ◽  
The Impact

Purpose – The purpose of this paper is to examine the impact of Broad-Based Black Economic Empowerment (BBBEE) on the risk and returns of listed and delisted property firms on the Johannesburg Stock Exchange (JSE). The study was investigated to understand the impact of Black Economic Empowerment (BEE) property sector charter and effect of government intervention on property listed markets. Design/methodology/approach – The study examines the performance trends of the listed and delisted property firms on the JSE from January 2006 to January 2012. The data were obtained from McGregor BFA database to compute the risk and return measures of the listed and delisted property firms. The study employs a capital asset pricing model (CAPM) to derive the alpha (outperformance) and beta (risk) to examine the trend amongst the BEE and non-BEE firms, Sharpe ratio was also employed as a measurement of performance. A comparative study is employed to analyse the risks and returns between listed property firms that are BEE compliant and BEE non-compliant. Findings – Results show that there exists differences in returns and risk between BEE-compliant firms and non-BEE-compliant firms. The study shows that BEE-compliant firms have higher returns than non-BEE firms and are less risky than non-BEE firms. By establishing this relationship, this possibly affects the investor’s decision to invest in BEE firms rather than non-BBBEE firms. This study can also assist the government in strategically adjusting the policy. Research limitations/implications – This study employs a CAPM which is a single-factor model. Further study could employ a multi-factor model. Practical implications – The results of this investigation, with the effects of BEE on returns, using annualized returns, the Sharpe ratio and alpha (outperformance), results show that BEE firms perform better than non-BEE firms. These results pose several implications for investors particularly when structuring their portfolios, further study would need to examine the role of BEE on stock returns in line with other factors that affect stock returns. The results in this study have several implications for government agencies, there may be the need to monitor the effect of the BEE policies on firm returns and re-calibrate policies accordingly. Originality/value – This study investigates the performance of listed property firms on the JSE which are BEE compliant. This is the first study to investigate listed property firms which are BEE compliant.

Fair value and banking contagion

2016 ◽  
Vol 7 (3) ◽  
pp. 215-236 ◽  
Author(s):  
Leila Gharbi ◽  
Halioui Khamoussi
Keyword(s):  
Data Model ◽  
Banking Sector ◽  
Fair Value ◽  
Islamic Banks ◽  
Fair Value Accounting ◽  
Content Type ◽  
Gcc Countries ◽  
Conventional Banks ◽  
Value Changes ◽  
The Impact

Purpose This paper aims to explore empirically the impact of fair value accounting on banking contagion in a comparative context between Islamic banks and conventional banks. Design/methodology/approach The analysis of the impact of fair value changes on banking contagion is carried out through a panel data model. This study covers 20 Islamic banks and 40 conventional banks operating in the Gulf Cooperation Council (GCC) countries during nine years from 2003 to 2011. Findings Empirical evidence shows that there is a significant change in dynamic volatility in GCC banking sector because of financial crisis 2008. However, results fail to confirm the hypothesis that fair value accounting is significantly associated with an increase of banking contagion for both Islamic and conventional banks operating in GCC countries. Originality/value The outcome of this study provides some insights for academicians, accountants as well as regulators in terms of enhancing the effectiveness of accounting practices.

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