When Does Ownership Matter? Board Characteristics and Behavior

Does “Good” Corporate Governance Help in a Crisis? The Impact of Country‐ and Firm‐Level Governance Mechanisms in the European Financial Crisis

“…(Judge, 2012). Recent research suggests that the efficacy of governance prescriptions may be contingent on a variety of factors, such as national economic development (Chen, Li, & Shapiro, 2011), national institutions (Carney, Gedajlovic, Heugens, Van Essen, & Van Oosterhout, 2011;Henrekson & Jakobsson, 2012;Renders & Gaeremynck, 2012), industry context (Chancharat, Krishnamurti, & Tian, 2012), ownership structure (Desender, Aguilera, Crespi-Cladera, & Garcia-Cestona, 2012), and a firm's financial condition and stage in its life-cycle (Dowell, Shackell, & Stuart, 2011). In this paper we contribute to contingency approaches in comparative corporate governance (Desender et al, 2012) by investigating which firm-and country-specific governance mechanisms can help firms maintain their financial performance in a financial crisis relative to their performance in more routine, steady-state financial conditions.…”

Audit Committees and Managerial Influence on Audit Quality: ‘Voluntary’ versus ‘Mandatory’ Approach to Corporate Governance

“…Similarly, using audit data from Korea, Park (2012) reveals a negative association between controlling shareholders' shareholdings and audit fees and further, this negative association remains robust across company size. Desender et al (2013) analyse data on continental European companies and find that the positive association between board independence and audit fees is weaker for firms with concentrated ownership, indicating that ownership concentration leads to fee reductions. Beck and Mauldin (2014) apply the tenure of the chief financial officer (CFO) as managerial influence and find that relatively more powerful CFOs decrease audit fees.…”

“…The controlling shareholder and management in such an environment are likely to expropriate the minority shareholders and inflate earnings to gain private benefits (Bae et al 2002;Bertrand et al 2002;Claessens et al 2000Claessens et al , 2002Hung 2001;Joh 2003). A majority of studies concerning the issue of manager ownership and audit fees supports the managerial entrenchment hypothesis (Beck and Mauldin 2014;Desender et al 2013;Gotti et al 2012;Niemi 2005;Park 2012). Using data from firms in Finland, Niemi (2005) finds greater audit fee reductions in manager-controlled companies than in other companies.…”

“…Research on audit fees has considered managerial ownership as only one of the causes of agency problems that can increase audit risk, but it neglects that managerial influence stemming from ownership could lead to a decreased demand for high-quality audits, resulting in low audit fees (Gotti et al 2012;Willekens et al 2004). The demand for high-quality audits may be attenuated when managers with extensive ownership concentrate only on their private interests by utilising internal corporate information (Desender et al 2013;Gotti et al 2012;Jensen and Meckling 1976;Niemi 2005;Park 2012). 1 External auditors reduce the agency problems of management and external stakeholders by monitoring the financial reporting process (Boone et al 2012;Graham et al 2005;Jensen and Meckling 1976;Kinney 2005).…”

“…Research on the relationship between ACs and audit fees consistently finds that ACs, which are responsible for the oversight of auditors and financial reporting processes, play a decisive role in triggering demand for high-quality audits, resulting in high audit fees (Abbott et al 2003(Abbott et al , 2004Jung 2005;Loukil 2014). ACs interact with the auditor to supervise managers, whereas managers might have an incentive to avoid this supervision, especially if they seek personal benefits (Abbott et al 2003;Beck and Mauldin 2014;Desender et al 2013). Thus, this study begins with a tension between management and ACs over demand for high-quality audits.…”