The empirical relationship between ownership characteristics and audit fees

The present study examines the empirical relationship between ownership characteristics and audit fees. The basic premise is that the level of ownership sophistication and the extent to which ownership is large and substantial impact the effectiveness of stockholder monitoring on corporate affairs including the financial reporting process. Furthermore, high managerial ownership firms may experience a decline in agency problems in financial reporting due to a decrease in managerial propensity to misreport financial results. By employing a cross-sectional least squares regression analysis for a sample of 358 New York Stock Exchange-listed firms audited by the Big Five auditors, we find evidence of a significantly positive relationship between diffused institutional stock ownership (i.e., having less than 5% individual shareholding) and audit fees, and a significantly negative relationship between institutional blockholder ownership (i.e., having 5% or more individual shareholding) and audit fees. Finally, we document that managerial stock ownership is negatively associated with audit fees. We do not, however, find evidence of any relationship between noninstitutional blockholder ownership (with at least 5% individual stock ownership) and audit fees. The study's main results hold in various specification tests including when the effects of board-related and audit committee variables are factored in the analysis. Based on the observed relationship between the ownership variables and audit fees, we suggest that the ownership characteristics of a firm as a part of its governance mechanism constitute an important determinant of audit fees.

Do artificial income smoothing and real income smoothing contribute to firm value equivalently?

This paper examines the potential impacts of artificial smoothing (abnormal accruals) and real smoothing (derivatives) on firm value. We find that the value of the firm decreases with the magnitude of abnormal accruals and increases with the level of derivative use. Moreover, the accrual discount is more pronounced in firms with weak investor protection and the hedging premium is greater for poorly governed firms. These results suggest that although managers can engage in real smoothing to improve the informativeness of firms’ earnings and thus reduce agency costs, they might use artificial techniques to cosmetically improve the income stream in order to expropriate minority shareholders. In further support of agency theories, we report that poor corporate governance motivates the use of abnormal accruals and discourages derivative use.     

Are Ethical Responses Linked to Locus of Control?

Locus of control (LOC) has received considerable attention in the psychological literature. However, there is limited research and inconclusive results reported from the research examining its potential relationship to ethical beliefs and attitudes.This research examines how the locus of control of university students (n = 671) can be linked to their ethical responses concerning academic-behavior items. Whenever the students were asked about their personal beliefs concerning the unethical nature of academic-environment behaviors, the results indicated significant differences ( 0.05) by the internal/external LOC designation on 21 of the 27 items. Because a review of the literature indicated that there might be an interaction of LOC scores, gender, and age, an analysis of variance was performed. An ANOVA was used to analyze the ethical responses using a 3-level age classification (AGECLASS) variable and a 4-level LOC/GENDER variable (INTMale, EXTMale, INTFemale, EXTFemale). Overall results indicated both AGECLASS and LOC/GENDER variables to be significant on the survey responses.