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"Board characteristics and audit fees: why ownership structure matters?"

Kurt A. Desender, Miguel A. Garcia-Cestona, Rafel Crespi, and Ruth V. Aguilera


First Author :

Kurt A. Desender
Universitat Autonoma de Barcelona

Second Author :

Miguel A. Garcia-Cestona
Universitat Autonoma de Barcelona

Third Author :

Rafel Crespi
Universitat Illes Balears

Fourth Author :

Ruth V. Aguilera
Business Administration
University of Illinois at Urbana-Champaign, College of Business

Abstract :
Analyzing 247 French and Spanish listed companies, we evaluate the influence of the ownership structure and the board of directors on the demand for external audit services. We argue that controlling shareholders influence the priorities of the board to focus on the provision of resources rather than monitoring. In contrast, boards in widely-held firms have a stronger focus on monitoring. To test our arguments, we explore how the relationship between the board of directors and the demand for audit is contingent on the firm’s ownership structure. Our results show that the ownership structure has a significant influence on the board’s priorities and the demand for audit. In addition, we uncover that for widely-held firms, board independence and CEO duality are positively related to the audit fees. In contrast, for closely-held firms, the relationship between board characteristics and the demand for external audit becomes insignificant.
JEL Classification : G3 , G32 , G34
Keywords :
audit demand, board of directors, monitoring, ownership structure, provision of resources
Footnotes & Acknowledgements :
We appreciate the helpful comments of Vicente Salas, Carmen Galve, Øyvind Bøhren, Øystein Strom and Jordi Surroca on a prior draft of this paper and the support of “The Commission of Universities and Research of the Innovation Department, Universities and Enterprise of the Catalan Government and the European Social Funds” and the Center of International Business and Education Research (CIBER) at the College of Business of the University of Illinois at Urbana-Champaign.
Manuscript Received : 2009
Manuscript Published : November 23, 2009
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