Ownership concentration and audit fees: do auditors matter most when investors are protected least?

Ben Ali Chiraz (1) , Cédric Lesage (2)

1 ESC Amiens
2 GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC

Minority expropriation could result when controlling shareholders can expropriate minority shareholders and profit from private benefits of control. This agency conflict (named Type II) has been rarely studied, as the most commonly assumed agency conflict resides between managers and shareholders (Type I). We want to study the role of the auditors in reducing the type II agency conflict. Using an audit fees model derived from Simunic (1980), we study the impact of type I and type II agency conflicts on audit fees in code law vs common law countries. We then focus two civil law countries (Germany and France) providing a lower investor protection level, and two common law countries (the USA and UK) providing a higher investor protection level (La Porta et al. 1998, 2000). Our results show 1) a negative relation between audit fees and managerial shareholding, which is stronger for common law than for civil law countries; 2) a curvilinear (concave) relation between audit fees and controlling shareholding for civil law countries; 3) no Type II conflict in the common law countries. These results illustrate the mixed effects of the legal environment and of each agency conflict on audit fees.

Mots clés: audit fees; controlling shareholder; minority expropriation; agency conflict

Domaines: Gestion et management

Ben Ali Chiraz, Cédric Lesage. Ownership concentration and audit fees: do auditors matter most when investors are protected least?. Crises et nouvelles problématiques de la Valeur, May 2010, Nice, France. pp.CD-ROM. ⟨hal-00476923⟩