Client Acceptance and Engagement Pricing following Auditor Resignations in Family Firms

2016 ◽  
Vol 35 (4) ◽  
pp. 137-158 ◽  
Author(s):  
Samer Khalil ◽  
Mohamad Mazboudi
Keyword(s):  
Ownership Structure ◽  
Family Firms ◽  
Audit Fees ◽  
Audit Pricing ◽  
Pricing Decisions ◽  
Big 4 ◽  
Professional Manager ◽  
Financial Restatements ◽  
The Family ◽  
Client Acceptance

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.

Offshore trading activities and audit fees: a textual approach

2020 ◽  
Vol 35 (4) ◽  
pp. 549-573
Author(s):  
Janus Jian Zhang ◽  
Yun Ke ◽  
Shuo Li ◽  
Yanan Zhang
Keyword(s):  
Audit Fees ◽  
Risk Indicator ◽  
Audit Pricing ◽  
Content Type ◽  
Listed Firms ◽  
Pricing Decisions ◽  
Big 4 ◽  
Analysis Technique ◽  
Trading Activities ◽  
Offshore Activities

Purpose The purpose of this paper is to investigate whether and how auditors’ pricing decisions are affected by their clients’ offshore trading activities, which are comprehensively measured through a textual analysis technique. Design/methodology/approach The authors identified a sample of 32,264 firm-year observations from publicly listed firms in the US during 2004 to 2015. The authors then used multivariate regressions to examine the effect of offshore trading activities on audit fees. In the regression models, the authors also control for a series of factors that are documented to influence audit pricing. Findings The authors find that offshore trading activities are positively associated with audit fees, suggesting that offshore activities are likely to increase a client firm’s business risk and/or the extent of client complexity. The authors also find that auditors charge higher audit fees only to firms purchasing inputs produced by their own assets overseas but not to firms buying inputs produced by local firms overseas. Moreover, the association between offshore trading activities and audit fees is more pronounced for offshore activities that are in countries with high trading centrality, for Big 4 auditors, or for auditors with industry expertise. Originality/value This paper extends the literature on the consequences of offshore activities by providing evidence on how auditors react to offshore activities. Moreover, it contributes to the audit fee literature. Prior studies largely focus on client-level determinants, while this study complements this line of literature by identifying firm’s offshore activities as an important risk indicator, which is perceived by auditors in their pricing decisions. A firm’s offshore activity is unique because the risk implication of the offshore activities depends not only on factors within the firm, but also on factors outside the firm in foreign nations.

Audit Fees for Initial Audit Engagements Before and After SOX

2009 ◽  
Vol 28 (1) ◽  
pp. 171-190 ◽  
Author(s):  
Hua-Wei Huang ◽  
K. Raghunandan ◽  
Dasaratha Rama
Keyword(s):  
Empirical Evidence ◽  
Audit Quality ◽  
Audit Fees ◽  
Pricing Decisions ◽  
Big 4 ◽  
Audit Fee ◽  
Auditor Change ◽  
Before And After ◽  
The Media ◽  
Client Acceptance

SUMMARY: Legislators, regulators, and the media have expressed concerns that auditors “lowball” the fees for initial-year audits and that such fee discounts can lead to reduced audit quality. We hypothesize that initial-year audit fee discounts will be less likely in the post-SOX period than in the pre-SOX period. Using both fee-levels and fee-changes models, we find that Big 4 clients receive initial-year audit fee discounts of about 24 percent in 2001; this finding is consistent with results from many prior studies that have examined various periods prior to SOX. However, we find that in 2005–2006 Big 4 clients pay an initial-year audit fee premium of around 16 percent. We also document that the Big 4 are much less likely to serve as a successor, following an auditor change, in 2005–2006 than in 2001. Overall, the findings suggest that concerns about initial-year audit fee discounts are not supported by empirical evidence in the post-SOX period. The results also suggest that the Big 4 have become more conservative in the post-SOX period with respect to client acceptance and pricing decisions.

Ownership structure and auditor selection

2020 ◽  
Vol 35 (8) ◽  
pp. 1121-1142
Author(s):  
Curtis M. Hall ◽  
Benjamin W. Hoffman ◽  
Zenghui Liu
Keyword(s):  
Ownership Structure ◽  
Banking Industry ◽  
Audit Fees ◽  
High Quality ◽  
Public And Private ◽  
Content Type ◽  
Industry Expert ◽  
Big 4 ◽  
Private Banks ◽  
Public Banks

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.

Is family ownership of a firm associated with the control of managerial discretion and corporate decisions?

2016 ◽  
Vol 6 (1) ◽  
Author(s):  
Jennifer Martinez Ferrero ◽  
Lázaro Rodríguez-Ariza ◽  
Manuel Bermejo-Sánchez
Keyword(s):  
Ownership Structure ◽  
Design Methodology ◽  
Family Firms ◽  
Managerial Discretion ◽  
Family Ownership ◽  
Managerial Decisions ◽  
Corporate Decisions ◽  
Type Design ◽  
The Family ◽  
The Impact

Purpose This paper considers the association between family firms and managerial discretion, hypothesising that a higher degree of family ownership may decrease the conflict of interest between owners and managers, thus avoiding the risk of discretionary actions by the latter. Design/methodology/approach Our empirical analysis is based on a large sample of international listed companies from 20 countries including the Special Administrative Region of Hong Kong and covers the period 2002–2010. Methodologically, we use a logit model with marginal effects on the panel data. Findings Our analysis shows that family ownership is associated with greater control and monitoring of managerial decisions, thus avoiding information asymmetries and, therefore, the risk of discretionary actions. In other words, family owners impose a stronger discipline and dissuade non-family managers from using managerial discretion to act in their own interest. Finally, we clarify the inconclusive results reported previously about the effects of family ownership on discretionary practices. Originality/value Our paper contributes to the family firm literature by providing evidence of the impact of ownership structure on the level of discretionay practices. Furthermore, we explore the differences between family and non-family firms as each group has its own varied characteristics. Moreover, in contrast to most previous studies, which have focused on only one country, we extend the analysis to include an international sample of 20 countries. This leads to potentially more powerful and generalizable results.

Audit prices and Big 4 fee premiums: further evidence from Thailand

2017 ◽  
Vol 7 (1) ◽  
pp. 2-15 ◽  
Author(s):  
Thanyawee Pratoomsuwan
Keyword(s):  
Price Competition ◽  
Stock Exchange ◽  
Audit Fees ◽  
Audit Pricing ◽  
Content Type ◽  
Audit Market ◽  
Big 4 ◽  
Audit Fee ◽  
The Usa ◽  
Using Data

Purpose Because there is mixed evidence regarding Big N fee premiums across countries, the purpose of this paper is to re-examine the phenomenon of audit price differentiations in the market for auditing services in Thailand. Although Hay et al. (2006) and Hay (2013) reviewed over 80 audit fee papers from 20 countries over 25 years, 13 of which were based in emerging economies, the understanding of the market for auditing services in Thailand remains limited. Because the Thai auditing market is also classified as a segmented market – i.e., a market that is less competitive for large-client firms and more competitive for small-client firms – this study tests audit price competition in an emerging audit market using Thailand as an example. Design/methodology/approach The traditional audit fee model is used to estimate audit fee premiums for a sample of over 300 non-financial companies listed on the Stock Exchange of Thailand in 2011. Findings Although the market for auditing services in Thailand is consistent with that described in Ferguson et al. (2013) – in which Big N audit firms dominate only the large-client segment – the results show that Big N auditors charge higher audit fees and earn higher fee premiums compared with non-Big N auditors in both the small- and large-client segments of the audit market. Research limitations/implications The evidence from this study reveals the existence of Big N fee premiums across market segmentations. Audit price differentials between Big N and non-Big N firms in both small- and large-client market segments might concern regulators regarding competition in the audit market with respect to whether the Big N firms are charging uncompetitive audit fees. These findings also imply that audit pricing varies across countries and the Big N price deferential is typically larger in emerging markets than in more developed audit markets and that it might be inadequate to study single-country audit pricing. However, the question whether the Big N fee premium results from Big N product differentiation is not directly investigated in this study. Originality/value Because earlier studies focusing on audit fee premiums have been conducted using data from the USA and Australia, the findings add to the limited evidence regarding audit fee premiums in an emerging country such as Thailand.

Ownership and Operating Performance of Spanish Family IPO Firms

2020 ◽  
pp. 210-233
Author(s):  
Fuencisla Martínez Lobato ◽  
C. José García Martín ◽  
José Emilio Farinós Viñas
Keyword(s):  
Empirical Evidence ◽  
Initial Public Offering ◽  
Ownership Structure ◽  
Family Firms ◽  
Operating Performance ◽  
Operational Performance ◽  
The Family ◽  
Spanish Family ◽  
Public Offering ◽  
A Company

Previous studies have shown the existence of a relationship between the ownership structure of a company and its operational performance. In this context, the empirical evidence reveals that after an initial public offering (IPO), companies experience a decline in their operational performance. In this research, the authors investigate whether the characteristics of Spanish family firms led to a different operating behavior with respect to non-family companies when they go public through an IPO. The results show that the particularities of the family firm do not turn into significant differences in operational performance after the listing process.

Audit Market Structure and Audit Pricing

2016 ◽  
Vol 31 (1) ◽  
pp. 57-81 ◽  
Author(s):  
John Daniel Eshleman ◽  
Bradley P. Lawson
Keyword(s):  
Fixed Effects ◽  
Audit Quality ◽  
Audit Fees ◽  
Market Concentration ◽  
First Year ◽  
Audit Pricing ◽  
Ongoing Debate ◽  
Audit Market ◽  
Big 4 ◽  
The U.S

SYNOPSIS Extant literature finds mixed evidence on the association between audit market concentration and audit fees. We re-examine this issue using a large sample of U.S. audit clients covering 90 metropolitan statistical areas (MSAs) spanning 2000–2013. We find that audit market concentration is associated with significantly higher audit fees, consistent with the concerns of regulators and managers. We also find that increases in audit market concentration are associated with fewer initial engagement fee discounts (i.e., reduced lowballing), particularly for non-Big 4 clients. We reconcile our findings with those of prior research and find that our divergent findings are attributable to controls for MSA fixed effects. In supplemental analyses, we find that audit market concentration is associated with higher audit quality. We also find that concentration is associated with higher audit quality for first-year engagements, but only if the auditor does not lowball on the engagement. Our results are relevant to the ongoing debate regarding the consequences of increased concentration within the U.S. audit market (GAO 2003, 2008). JEL Classifications: M41; M42; L13.

Peer Firms in Audit Pricing: Evidence Under High Uncertainty Settings

2020 ◽  
pp. 0148558X2092098
Author(s):  
Junxiong Fang ◽  
Ferdinand A. Gul ◽  
Heibatollah Sami ◽  
Haiyan Zhou
Keyword(s):  
Information Asymmetry ◽  
Peer Group ◽  
Peer Groups ◽  
Audit Fees ◽  
Audit Pricing ◽  
Cpa Firms ◽  
Current Period ◽  
Big 4 ◽  
Group Information ◽  
Technology Industries

Drawing on prior studies regarding the use of peers for investment decisions and compensation practices and the recent reports which suggest that firms use peer information for audit pricing, we examine the effect of peer groups on the audit pricing process under high information asymmetry environment. Using observations from the emerging markets of China, we find that peer group information is used in audit pricing with peer groups defined as the Industry, Industry/Region, Industry/Big4, Industry/Size, and Industry/Region/Big4. This is consistent with above complementary theories. We also find evidence that peer group information is more likely to be used by firms from low-technology industries, less developed regions, and firms audited by non-Big 4 CPA firms than those from high-technology industries, more developed regions, and firms audited by Big 4 CPA firms. Also, peer group information is more likely to be used in clients firms with shorter auditor tenure and with lower analyst following compared with their counterparts. Finally, we find that clients with lower audit fees than their peer groups in the previous period are more likely to increase audit fees in the current period. Our results are qualitatively the same regardless of whether we use an overall sample across different industries or for each industry separately. These results are consistent with the peer group literature and also indicate that peer group information is more likely to be used in conditions when information asymmetry is high.

scholarly journals OWNERSHIP STRUCTURES, INVESTORS CONFIDENCE AND FINANCIAL DECISIONS IN FAMILY FIRMS: EVIDENCE FROM GCC MARKETS

2018 ◽  
Vol 14 (1) ◽  
pp. 52-68
Author(s):  
Muhammad Sadiq Shahid ◽  
Keyword(s):  
Ownership Structure ◽  
Family Firms ◽  
Stock Exchange ◽  
Annual Reports ◽  
Stock Exchanges ◽  
Investment Funds ◽  
Financial Decisions ◽  
Ownership Structures ◽  
The Family ◽  
The Impact

The objective of this study is to examine the impact of financial decisions on the ownership structure. This study adopted two themes of ownership structure (e.g., 25% & 50%) that categorized the family-owned firms (FOF) and non-family firms (NFOF). The data was collected from 286 firms listed at GCC stock exchanges annual reports, stock exchange database, and Data Stream that range from 2010-2016 periods. The findings of this study showed that the FOFs have lesser investment-internal fund sensitivity than NFOFs. Though, there is an insignificant effect of the block holder on investment funds sensitivity. However, the little implication of dividend payout in FOFs as compare to NFOFs was disclosed in the results. Moreover, it wrapped up that there are less agency problems and information asymmetry in FOFs comparatively.

scholarly journals Audit Fees In Family Firms: Evidence From U.S. Listed Companies

2014 ◽  
Vol 30 (3) ◽  
pp. 807 ◽  
Author(s):  
Chiraz Ben Ali ◽  
Cedric Lesage
Keyword(s):  
World Economy ◽  
Family Firms ◽  
Audit Fees ◽  
Listed Companies ◽  
Family Businesses ◽  
Estimation Model ◽  
Audit Pricing ◽  
Research Attention ◽  
Managerial Decisions ◽  
The Relationship

Family businesses are an important part of the world economy (Anderson & Reeb, 2003) and differ considerably from non-family firms with regard to corporate governance. However, despite their difference, family businesses have received relatively little research attention. Our study contributes to this growing research by empirically investigating the relationship between family shareholding and audit pricing. Using a sample of 3,291 firm-year observations of major U.S. listed companies, for the 20062008 period, our results demonstrate that audit fees are negatively associated with family shareholding after taking into account time-varying effects and industry effects as well as traditional control variables. The empirical results are robust to alternative family shareholding measures and estimation model specifications. Our results are consistent with the convergence-of-interests hypothesis suggesting that family firms face lower manager/shareholders agency costs. Auditors charge lower fees for family firms because of lower information asymmetry and risk given that the controlling family is well informed about the firm and is better able to monitor managerial decisions.

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