Corporate governance, directors' and officers' insurance premiums and audit fees

2014 ◽  
Vol 29 (2) ◽  
pp. 173-195 ◽  
Author(s):  
Hyeesoo H. Chung ◽  
Jinyoung P. Wynn
Keyword(s):  
Corporate Governance ◽  
Positive Association ◽  
Audit Fees ◽  
Structural Features ◽  
Small Sample ◽  
Content Type ◽  
Insurance Premiums ◽  
Governance Quality ◽  
Directors And Officers ◽  
The Impact

Purpose – This study aims to examine the association between corporate governance and audit fees using directors' and officers' (D&O) insurance premiums as a proxy for overall governance quality. The use of an overall governance measure that captures both structural and non-structural governance features may shed light on the association between governance and audit fees, which is known to be inconclusive in the literature. Design/methodology/approach – The authors employ D&O insurance premiums as a proxy for governance quality that reflects both the structural features and non-structural features of governance. D&O insurance premiums are hand-collected from a proxy circular of Canadian firms. Multivariate regression analyses are used for testing. Findings – The authors find a positive association between D&O premiums and audit fees, suggesting that auditors charge higher fees to firms with heightened corporate governance risk. Even after controlling for structural governance variables in the regression model, the authors find a significantly positive association between D&O premiums and audit fees. Research limitations/implications – The findings suggest that mandatory disclosures of D&O insurance policies can be useful for market participants. This study uses a relatively small sample of Canadian firms. A larger sample could strengthen the implications of the findings. Originality/value – The findings suggest that structural features of governance may be insufficient to provide a full understanding of the impact of corporate governance on audit pricing and add to the understanding of the determinants of audit fees.

Conditional Conservatism and Audit Fees

2014 ◽  
Vol 29 (1) ◽  
pp. 83-113 ◽  
Author(s):  
Hye Seung (Grace) Lee ◽  
Xu Li ◽  
Heibatollah Sami
Keyword(s):  
Corporate Governance ◽  
Potential Benefit ◽  
Audit Fees ◽  
Accounting Conservatism ◽  
Audit Risk ◽  
Debt Contracting ◽  
Conditional Conservatism ◽  
Governance Quality ◽  
Corporate Governance Quality ◽  
The Impact

SYNOPSIS In this study, we examine the impact of conditional conservatism on audit fees and, more importantly, the influence of corporate governance on this relationship. Prior literature presents evidence regarding explanations for the existence and pervasiveness of accounting conservatism such as compensation and debt contracting, shareholder litigation, taxation, and accounting regulation. However, there is very limited evidence or discussion of the potential benefit of accounting conservatism on audit risk and thus audit fees, and how the potential benefit can be attenuated by corporate governance quality. Using a sample of firm-year observations over the period of 2004–2009, we provide evidence consistent with conditional conservatism and firms' commitment to such conservatism reducing their audit fees. However, our evidence shows that this reduction in audit fees is moderated by higher corporate governance quality. These results have implications for auditors, regulators, standard setters, and firms' managers. In addition, our study extends the literature on the determinants of audit fees. JEL Classifications: M41; M42; D81; D22.

Board of directors’ effectiveness and monitoring costs

2019 ◽  
Vol 35 (4) ◽  
pp. 477-497
Author(s):  
Waddah Kamal Hassan Omer ◽  
Adel Ali Al-Qadasi
Keyword(s):  
Corporate Governance ◽  
Boards Of Directors ◽  
Internal Audit ◽  
Audit Fees ◽  
Least Square ◽  
Content Type ◽  
Executive Remuneration ◽  
Sensitivity Tests ◽  
Monitoring Costs ◽  
The Impact

Purpose Responding to the call for research into the behavior of family companies to provide better understanding of corporate governance, this paper aims to examine the impact of boards’ effectiveness on the investment in monitoring costs (i.e. audit fees, internal audit function budget and executive remuneration) and how this relationship is moderated by family control. Design/methodology/approach A sample of 2,176 firm-year observations of Malaysian listed companies is used. The ordinary least square regression is used to examine the associations. Additional sensitivity tests are performed. Findings The study finds that there is no relationship between boards’ effectiveness and the demand for monitoring costs for the full sample. However, the findings of sub-samples (family and non-family companies) indicate that a family company with an effective board is less likely to invest more in monitoring, suggesting that the complementary association between the board’s effectiveness and investment in monitoring is a more dominant relationship than the substitution relationship in non-family companies. These findings show that the boards of directors of Malaysian family companies perform a deficient monitoring role, where the presence of family controlling shareholders in management may reduce their independence and efficiency in performing their monitoring role. The findings remain robust after performing additional sensitivity tests. Originality/value This paper contributes to the literature on corporate governance in a unique setting (family companies), where conflict of interest is created between controlling insiders and minority shareholders (Type II agency problem). It provides insight for Malaysian policymakers in assessing the issue of expropriation in family companies and enhancing the policy related to its boards.

scholarly journals The puzzle of internal audit function budget toward specialist auditor choice and audit fees

2019 ◽  
Vol 34 (2) ◽  
pp. 208-243 ◽  
Author(s):  
Adel Ali AL-Qadasi ◽  
Shamharir Abidin ◽  
Hamdan Amer Al-Jaifi
Keyword(s):  
Audit Quality ◽  
Internal Audit ◽  
Positive Association ◽  
Audit Fees ◽  
Least Square ◽  
Family Ownership ◽  
Content Type ◽  
Internal Audit Function ◽  
The Impact ◽  
Industry Specialist

PurposeThis study is motivated by the lack of internal audit function (IAF) research and by the call for research on the impact of dominant owners such as family shareholders on audit fees and the demand for audit quality. This study aims to examine the impact of the IAF budget on the selection of industry-specialist auditors and on audit fees, particularly in companies with family-controlled shareholders, a feature unique to Malaysia.Design/methodology/approachData of Malaysian-listed companies during the period 2009-2012 are used. To examine the relationships, logit and ordinary least square regressions are used. Several additional analyses are conducted to assess the robustness of the main results, including alternative measures of specialist auditor and family ownership, endogeneity problems and self-selection bias.FindingsThe results show that the IAF budget is positively related to hiring industry-specialist auditors and audit fees. However, family companies are less likely to support the positive association between IAF costs and engage specialist auditors than non-family companies. In addition, a complementary association between the costs of IAF and audit fees for both family and non-family companies was found. Finally, the results show that there is a negative association between family ownership and the ratio of IAF costs to audit fees, suggesting that family companies rely more upon external auditing than internal auditing.Originality/valueThe contribution of this study is to provide an empirical evidence about the tradeoff between IAF and both industry-specialist auditors and audit fees with considering the moderating impact of family-ownership shareholdings. This issue is yet to be examined, and it provides implications for policymakers and practitioners, as it offers insights into the importance of investing in IAF toward hiring industry-specialist auditors and pricing the audit services.

scholarly journals Corporate governance and audit features: SMEs evidence

2018 ◽  
Vol 25 (1) ◽  
pp. 163-179 ◽  
Author(s):  
Basil Al-Najjar
Keyword(s):  
Corporate Governance ◽  
Positive Impact ◽  
Audit Fees ◽  
Logit Analysis ◽  
Governance Mechanisms ◽  
Content Type ◽  
Big 4 ◽  
Audit Firms ◽  
The Impact ◽  
Selection Of

Purpose The purpose of this paper is to investigate the effect of corporate governance factors on audit features, namely, audit fees and the selection of Big 4 audit firms within the UK SMEs context. Design/methodology/approach The author uses different regression models to investigate the impact of corporate governance characteristics on audit features, and employs cross-sectional time series models as well as two-stage least squares technique. In addition, the author has used logit analysis to examine the effect of corporate governance factors on the selection of Big 4 audit firms. Findings The author provides new evidence that governance mechanisms in SMEs affect different audit features. The results show that corporate governance mechanisms are important in determining audit fees. The author detects a positive impact of board independence, audit meeting and board size on audit fees. The author also reports evidence that governance factors determine the selection of Big 4 audit firms. In particular, the author reports that independent directors and audit diligence positively affect the decision to select Big 4 audit firms. Originality/value This paper investigates the under-researched relationship between audit features and corporate governance using UK SMEs. In so doing, the author aims to provide new insights into this relationship within the SMEs context.

Corporate governance and the variability of stock returns

2014 ◽  
Vol 10 (4) ◽  
pp. 494-510 ◽  
Author(s):  
Hardjo Koerniadi ◽  
Chandrasekhar Krishnamurti ◽  
Alireza Tourani-Rad
Keyword(s):  
Corporate Governance ◽  
Stock Returns ◽  
Stock Option ◽  
Data Availability ◽  
Firm Level ◽  
Policy Makers ◽  
Content Type ◽  
Governance Quality ◽  
The Impact ◽  
Practical Implications

Purpose – The purpose of this paper is to analyze the impact of firm-level corporate governance practices on the riskiness of a firm's stock returns. Design/methodology/approach – The authors constructed an index of governance quality incorporating best practices stipulated by regulators. The authors employed regression analysis. Findings – The empirical evidence, using an index of corporate governance, shows that well-governed New Zealand firms experience lower levels of risk, ceteris paribus. In particular, the results indicate that corporate governance aspects such as board composition, shareholder rights, and disclosure practices are associated with lower levels of risk. Research limitations/implications – A limitation of the study is that the corporate governance index constructed is somewhat arbitrary and due to limitation of data availability the authors may have excluded some factors such as share trading policy of directors and policies regarding provision of non-auditing services by auditors. The research supports the view that institutional context could have an impact on governance outcomes. The work has three implications for managers, investors, and policy makers. First, the results imply that well-governed firms have lower idiosyncratic risk and that this reduction is most likely due to the reduction in agency costs and information risk. Second, in the absence of features like an active corporate control market and stock option based managerial compensation, managers have little incentives to take on risky projects that increase firm value. Third, the results suggest that the managers of well-governed firms are not more risk averse with respect to investment decisions compared to poorly governed firms. Practical implications – The work has practical implications for managers, investors, and policy makers. Well-governed firms face lower variability in stock returns compared to poorly governed firms. Firms that have independent boards that protect its shareholders’ rights and disclose its governance-related policies experience lower firm-level risk, other things being equal. Originality/value – This study is the first one to examine the impact of a composite measure of corporate governance quality on stock return variability in a non-US setting. The results suggest that firms can use specific corporate governance provisions to mitigate firm-level risk. The findings of the paper are therefore relevant and useful to corporate managers, investors, and policy makers.

scholarly journals The influence of corporate governance on intellectual capital efficiency: evidence from Islamic banks of OIC countries

2020 ◽  
Vol 5 (2) ◽  
pp. 195-208 ◽  
Author(s):  
Ejaz Aslam ◽  
Razali Haron
Keyword(s):  
Corporate Governance ◽  
Intellectual Capital ◽  
Audit Committee ◽  
Positive Association ◽  
Islamic Banks ◽  
Content Type ◽  
Capital Efficiency ◽  
Generalised Method Of Moments ◽  
Time Invariant ◽  
The Impact

PurposeThe purpose of this study is to examine the impact of corporate governance (CG) on intellectual capital efficiency (ICE) in Islamic banks (IBs) of Organisation of Islamic Cooperation (OIC) countries.Design/methodology/approachA sample of 129 IBs is drawn from the 29 OIC countries from 2008 to 2017. A two-step system of the generalised method of moments has been employed to account for the unobserved endogeneity and heteroscedasticity issue that arose due to time-variant and time-invariant variables.FindingsThe results revealed that CG measures, namely board size, non-executive directors do explain the extent and quality of ICE in the expected direction. In contrast, CEO duality, Shariah board and audit committee are negatively associated with the ICE. Moreover, the authors observed that male CEO in IBs has negative, but foreign ownership has a positive association with ICE in determining the extent of ICE in IBs. This study contributes specifically to the stakeholder theory and the literature of ICE and CG.Research limitations/implicationsThe findings of the study provide insight into how a larger board can overcome skill deficiency and how making more investment in ICE would help to enhance productivity. Hence, bank managers, regulators, policymakers and shareholders have strong interest in designing the appropriate CG structure to develop ICE in banks.Originality/valueThis is one of the few studies which provide empirical evidence of CG mechanism to boost the ICE in the perspective of IBs of the OIC countries.

The relation between corporate governance mechanisms, executive compensation and audit fees

2018 ◽  
Vol 41 (8) ◽  
pp. 939-967 ◽  
Author(s):  
Mahdi Salehi ◽  
Hossein Tarighi ◽  
Samaneh Safdari
Keyword(s):  
Corporate Governance ◽  
Executive Compensation ◽  
Emerging Market ◽  
Positive Association ◽  
Audit Fees ◽  
Stock Option ◽  
Governance Mechanisms ◽  
Content Type ◽  
Corporate Governance Mechanisms ◽  
Board Ownership

Purpose This paper aims to investigate the effects of some corporate governance mechanisms and executive compensation on audit fees in an emerging market. Design/methodology/approach The study population consists of 540 observations and 90 listed companies on the Tehran Stock Exchange during the years 2009-2014. The statistical model used in this study is a multivariate regression model; besides, the statistical technique used to test the hypotheses proposed in this research is panel data. Findings The changes in the value of a CEO’s own firm stock option portfolio, in thousands of rials (Iran’s currency), for a 0.01 change in stock return volatility and stock price are defined as Vega and Delta, respectively. The results demonstrated that there is a positive association between audit fees and delta, but not Vega; this means that a fee premium is linked to CEO Delta incentives. The findings show that Iranian companies pay more audit fees when they give managers more rewards. In addition, the results show that there is not a significant relationship between fees resulting from audit risk and Delta and Vega incentives of the board. Inconsistent with agency theory, the authors found that the independence of board members did not have any effect on audit fees. As a final point, the outcomes of the paper demonstrate that managers who invest in companies under their own management do not have any impact on the amount of audit fee. To put it another way, there is not any significant connection between the board ownership and audit fees. Practical implications This is one of the most important studies that simultaneously surveys the impacts of corporate governance mechanisms and executive compensation in the Iranian audit market. The results of this study will reveal more than the role of corporate governance mechanisms for society and users of financial statements because as tools on the CEO actions, they always have to pay attention to the implementation of corporate principles in the economic entity’ operation. Originality/value The present study has examined the relationship between two cases of corporate governance mechanisms named the board independence and the board ownership with audit fees in a country where, to the authors’ knowledge as in most other developing markets, such a relationship has not been a subject of empirical research. Moreover, the use of a two-dimensional measure of executive compensation, namely, Delta and Vega incentives, primarily considering research undertaken in an emerging market, as a valuable contribution may be observed.

Corporate governance and firm value: a comparative analysis of state and non-state owned companies in the context of Pakistan

2018 ◽  
Vol 18 (6) ◽  
pp. 1196-1206 ◽  
Author(s):  
Kalim Ullah Bhat ◽  
Yan Chen ◽  
Khalil Jebran ◽  
Niaz Ahmed Bhutto
Keyword(s):  
Corporate Governance ◽  
Firm Value ◽  
Cost Benefit Analysis ◽  
Practical Implication ◽  
Random Effect ◽  
Random Effect Model ◽  
Positive Association ◽  
Suitable Model ◽  
Content Type ◽  
The Impact

Purpose The purpose of this paper is to examine how corporate governance instruments impact firm value in the context of Pakistan. This paper considers state- and non-state-owned enterprises and examines whether the influence of corporate governance on firm value varies across firms having different nature of ownership. Design/methodology/approach This study opts for an unbalanced sample of state- and non-state-owned enterprises for the period 2010-2014. Panel data regression is adopted for estimation of main results. The suitable model, i.e. fixed and random effect model, is selected using Hausman specification test. Findings The notable findings show that board independence has a significant and positive relationship with firm value only for state-owned companies. Furthermore, the results show that market capitalization and return on assets have a significant and positive association with firm value for both state- and non-state-owned enterprises. All other variables are found insignificant for both state- and non-state-owned companies, but the results are consistent with those reported in previous studies. Practical implication The findings of the study suggest that fair induction of independent directors, appropriate board size and cost-benefit analysis to conduct frequent meetings can help corporations to improve their performance. Originality/value This study is adding to the current literature by providing new insights and shows that the impact of corporate governance on firm value varies across firms of different types of ownership, i.e. state- and non-state-owned enterprises.

Corporate governance and corporate performance: financial crisis (2008)

2016 ◽  
Vol 39 (11) ◽  
pp. 1494-1515 ◽  
Author(s):  
Oskar Kowalewski
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Financial Crisis ◽  
Stock Exchange ◽  
Emerging Market ◽  
Positive Association ◽  
Tobin’S Q ◽  
Tobin's Q ◽  
Content Type ◽  
The Impact

Purpose This paper aims to investigate the impact of corporate governance, as measured by the Corporate Governance Index, on firm performance and dividend payouts during the financial crisis of 2008. Design/methodology/approach The empirical approach followed in the study involved constructing a comprehensive measure of corporate governance for 298 non-financial companies listed on the Warsaw Stock Exchange in the years 2006-2010. Findings The results show that prior to the crisis, there was a positive association between corporate governance and performance as measured by Tobin’s q. Moreover, the study presents evidence that higher corporate governance leads to an increase in cash dividends. Amid the financial crisis, corporate governance was positively associated with a higher return on assets, yet this was not observed when measured by Tobin’s q. Additionally, during this period, better-governed companies paid dividends less generously than firms with lower corporate governance standards did. Originality/value The study provides new evidence on the impact of corporate governance on firm performance and valuation in an emerging market during the financial crisis. Moreover, the study shows that governance mechanisms operate differently in crisis and non-crisis periods.

Corporate governance practices and capital structure decisions: the moderating effect of gender diversity

2020 ◽  
Vol 20 (5) ◽  
pp. 939-964
Author(s):  
Mohammad A.A Zaid ◽  
Man Wang ◽  
Sara T.F. Abuhijleh ◽  
Ayman Issa ◽  
Mohammed W.A. Saleh ◽  
...  
Keyword(s):  
Corporate Governance ◽  
Panel Data ◽  
Capital Structure ◽  
Generalized Method Of Moments ◽  
Gender Diversity ◽  
Business Environment ◽  
Board Structure ◽  
Content Type ◽  
Financing Decisions ◽  
The Impact

Purpose Motivated by the agency theory, this study aims to empirically examine the nexus between board attributes and a firm’s financing decisions of non-financial listed firms in Palestine and how the previous relationship is moderated and shaped by the level of gender diversity. Design/methodology/approach Multiple regression analysis on a panel data was used. Further, we applied three different approaches of static panel data “pooled OLS, fixed effect and random effect.” Fixed-effects estimator was selected as the optimal and most appropriate model. In addition, to control for the potential endogeneity problem and to profoundly analyze the study data, the authors perform the one-step system generalized method of moments (GMM) estimator. Dynamic panel GMM specification was superior in generating robust findings. Findings The findings clearly unveil that all explanatory variables in the study model have a significant influence on the firm’s financing decisions. Moreover, the results report that the impact of board size and board independence are more positive under conditions of a high level of gender diversity, whereas the influence of CEO duality on the firm’s leverage level turned from negative to positive. In a nutshell, gender diversity moderates the effect of board structure on a firm’s financing decisions. Research limitations/implications This study was restricted to one institutional context (Palestine); therefore, the results reflect the attributes of the Palestinian business environment. In this vein, it is possible to generate different findings in other countries, particularly in developed markets. Practical implications The findings of this study can draw responsible parties and policymakers’ attention in developing countries to introduce and contextualize new mechanisms that can lead to better monitoring process and help firms in attracting better resources and establishing an optimal capital structure. For instance, entities should mandate a minimum quota for the proportion of women incorporation in boardrooms. Originality/value This study provides empirical evidence on the moderating role of gender diversity on the effect of board structure on firm’s financing decisions, something that was predominantly neglected by the earlier studies and has not yet examined by ancestors. Thereby, to protrude nuanced understanding of this novel and unprecedented idea, this study thoroughly bridges this research gap and contributes practically and theoretically to the existing corporate governance–capital structure literature.

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