Ownership structure and audit fees: Evidence from Sub-Saharan Africa

Abstract

This study examines the factors affecting audit fees in firms listed primarily in Sub-Saharan Africa countries by focusing on the relationship between ownership structure and audit fees. The study uses an unbalanced panel dataset of 531 observations of non-financial firms collected from annual reports for the years 2005 to 2009. The findings show that audit fees vary with ownership structure. Particularly, the study shows managerial ownership and concentrated ownership are negatively related to audit fees, whereas foreign ownership is related positively to audit fees. This study provides valuable insights on effects of ownership structure on audit fees pricing. Specifically, the study emphasizes that decisions of pricing of audit fees should consider characteristics of the ownership structure of a firm. The study makes contributions to the literature that focuses on the nexus between corporate governance and audit fees. Particularly, the findings provide empirical evidence of impacts of ownership structure on audit fees in Sub-Saharan African context, which is characterized by less developed financial markets and a weak institutional environment relative to developed countries where most studies are conducted.

Evaluation of ownership structure and audit-quality in the wake of the Covid-19 crisis: empirical evidence from Jordan

“…The analysis confirms the thought of the necessity for high audit quality during COVID-19 due to the high level of market uncertainty and the nature of such type of ownership consisting of a greater level of agency conflict between large and minority shareholders. This result is consistent with what other authors claim (Munisi, 2023;Zhong et al, 2007) who argued that in the case of block-holder owners, the information asymmetry makes the audit process more complex and riskier. This situation may lead auditors to spend more time and effort providing robust confirmation on financial reports.…”

“…Prior research confirms that there are two theoretical arguments regarding the impact of such a type of ownership on audit quality. From one point of view, foreign investors may be less likely to engage in earnings management if they have access to more information, as predicted by the knowledge spillover hypothesis (Munisi, 2023). Since foreign ownership has been shown to bring significant economic benefits, international investors should do better Ownership structure and audit quality than domestic institutional investors (Alhababsah, 2019).…”

“…So, high-quality audit services are used by foreign investors as part of monitoring mechanisms to assure the truthfulness and accuracy of data presented by management. When it comes to auditing, international shareholders demand that companies hire more qualified auditors; yet these auditors typically charge more for their services, thus driving up the cost of the audit (Munisi, 2023).…”

“…Such shareholders are more knowledgeable about the economy, industries and capital markets than other shareholders. Therefore, there would be less of an agency problem and, consequently, a reduced audit cost in this sort of ownership structure because of the greater presumption of the ability to oversee and monitor managers' actions (Munisi, 2023).…”

“…In Jordan, institutional investors play a significant role as a kind of oversight mechanism. Institutional investors help strengthen corporate governance structures because they can force managers to improve the accuracy and transparency of financial reporting (Munisi, 2023). Forcing managers to produce greater audit quality which will lead to increase monitoring costs (Nawaiseh et al, 2019).…”