Dual-Class Shares and Audit Pricing: Evidence from the Canadian Markets

Khalil, Samer; Magnan, Michel; Cohen, Jeffrey P.

doi:10.2139/ssrn.875352

Cited by 21 publications

(27 citation statements)

References 39 publications

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“…Our results for U.S. firms contrasts with the findings of Khalil et al (2008), who use a sample of Canadian dual-class firms and find a positive association between audit fees and the wedge between cash flow rights and control rights. We attribute these contrasting results to different legal and regulatory environments between Canada and the United States.…”

Section: Discussioncontrasting

confidence: 99%

“…Several prior studies (e.g., Claessens et al, 2002;Gompers et al, 2010;Nguyen & Xu, 2010) measure the wedge as the difference between the controlling insiders' percentages of voting rights and cash flow rights. The second measure used in prior literature (e.g., Khalil et al, 2008;Lemmon & Lins, 2003;Masulis et al, 2009) is based on the ratio of the percentage of a firm's voting rights controlled by insiders to the percentage of cash flow rights controlled by insiders. A third measure offered by Francis et al (2005) is computed as one minus the ratio of the percentage of voting rights held by inferior class shareholders to the percentage of cash flow rights held by inferior class shareholders.…”

Section: Discussionmentioning

confidence: 99%

“…To the best of our knowledge, this is the first study to examine the empirical link between a dual-class ownership structure and audit fees for U.S. firms. In a related study, Khalil, Magnan, and Cohen (2008) examine the association between dual-class shares and audit fees for Canadian firms using the within-sample analysis. However, prior studies have shown, in other accounting and auditing contexts, that results using Canadian companies differ significantly from results of studies using U.S. data due to the differences in the legal environments between the United States and Canada (Baginski, Hassell, & Kimbrough, 2002;Clarkson & Simunic, 1994;Datar, Feltham, & Hughes, dan J. S., 1991;Feltham, Hughes, & Simunic, 1991;Simunic & Stein, 1987).…”

Section: Introductionmentioning

confidence: 99%

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Dual–class ownership structure and audit fees

et al. 2020

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A dual-class share structure creates a separation between cash flow rights and voting rights. Dual-class firms impact audit fees through their effect on supply/demand for auditing. This article examines the association between audit fees and dual-class share structure for U.S. public firms. We find that a dual-class share structure is associated with lower audit fees compared to single-class firms. Further, within dual-class firms, we find that the divergence between cash flow rights and voting rights is negatively associated with audit fees. The results are consistent with the managerial incentive-alignment effect and/or the insulation effect of a dual-class share structure on the supply/demand for audit services. This study highlights that the ownership structure of a firm constitutes an important role in audit pricing.

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Section: Discussioncontrasting

confidence: 99%

Section: Discussionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Dual–class ownership structure and audit fees

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“…We also include seven additional firm-specific variables (SALES GROWTH, AUDIT FEE, WW ETR, DIV YIELD, M&A FREQ, M&A RETURN, and IFRS) that capture operating, auditing, tax, and investment related characteristics that could be correlated to firms' ownership structure or opacity as well as the above four country-level variables. These variables are drawn from the past literature (Francis, Schipper, and Vincent [2005], Khalil, Magnan, and Cohen [2008], McGuire, Wang, and Wilson [2014], Jordan, Liu, and Wu [2014], Holmen and Nivorozhkin [2007], Barth, Landsman, and Lang [2008]).…”

Section: Controlling For Additional Country-level and Firm-level Detementioning

confidence: 99%

Divergence of Cash Flow and Voting Rights, Opacity, and Stock Price Crash Risk: International Evidence

Hong

Kim

Welker

2017

J of Accounting Research

147

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This study investigates whether and how the deviation of cash flow rights (ownership) from voting rights (control), or simply the ownership‐control wedge, influences the likelihood that extreme negative outliers occur in stock return distributions, which we refer to as stock price crash risk. We do so using a comprehensive panel data set of firms with a dual‐class share structure from 20 countries around the world for the period of 1995–2007. We predict and find that opaque firms with a large wedge are more crash prone than opaque firms with a small wedge. In addition, we predict and find that the positive relation between the wedge and crash risk is less pronounced for firms with more effective external monitoring and for firms with greater growth opportunities. The results of this study are broadly consistent with Jin and Myers’s theory that agency costs, combined with opacity, exacerbate stock price crash risk.

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“…The shareholders ultimately elect directors, with a mandate to be the guardians of shareholders' interests. Thus, their needs may influence board decisions, with empirical evidence to that effect in terms of executive compensation determination (e.g., Craighead et al, 2004), mergers and acquisitions strategies (e.g., Miller, Le Breton-Miller, & Lester, 2010), overall compensation strategy for employees (Werner, Tosi, & Gomez-Mejia, 2005), audit fees (Cohen, Khalil & Magnan, 2008), or restructurings (e.g., Semadeni & Cannella, 2011). Consistent with the view directors take decisions with owners' interests, Pedersen & Thomsen (1997), and Thomsen and Pedersen (2000) show that the identity of the largest shareholder, as well as ownership concentration, has a significant impact on firm performance.…”

Section: Firm Ownership and The Board Of Directors: A Configurationalmentioning

confidence: 99%

Why do Boards Differ? Because Owners Do: Assessing Ownership Impact on Board Composition

Sur¹,

Lvina²,

Magnan³

2013

Corporate Governance

Self Cite

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Manuscript Type: EmpiricalResearch Question/Issue: Does the ownership structure of a firm, specifically the aggregation of the different ownership types within each firm, relate with the composition of its board? Research Findings/Insights: Using archival data from a sample comprising 1,487 U.S. firms, we find that the composition of the individual profiles of directors on corporate boards (i.e., independent, affiliated, or insider) match a firm's aggregated ownership configuration (institutional, corporate parent, family-entrepreneur control) even after parsing out the impact of CEO characteristics, firm size, and performance. Further analyses elaborate on the specific relationship between each director profile and ownership types present within the firm. Theoretical/Academic Implications: This study builds upon three conceptual perspectives: agency, resource dependency, and behavioral. We argue that each type of ownership has differing imperatives and may prefer different types of directors to fulfill their governance needs. The paper illustrates that the relationship between corporate governance, specifically board composition, and ownership is a comprehensive phenomenon that is best understood through multiple theoretical lenses. Practitioner/Policy Implications: This study shows that ownership and board composition are not substitutable governance mechanisms as commonly understood, but might be complementary mechanisms. A finding that governance mechanisms are complementary implies that regulatory or institutional pressures to modify board composition with the addition of directors with similar profiles may affect the governance in unforeseen ways.

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Dual-Class Shares and Audit Pricing: Evidence from the Canadian Markets

Cited by 21 publications

References 39 publications

Dual–class ownership structure and audit fees

Dual–class ownership structure and audit fees

Divergence of Cash Flow and Voting Rights, Opacity, and Stock Price Crash Risk: International Evidence

Why do Boards Differ? Because Owners Do: Assessing Ownership Impact on Board Composition

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