Drawing on prior literature on audit fees, client reputation, and corporate governance, we posit that a material adverse event at a firm, such as a financial fraud allegation, leads to an increase in the audit fees of firms connected to the former by a board interlock. We propose two possible mechanisms to explain the upward pressure on audit fees: a client-side effect, where the client demands additional audit services, and an auditor-side effect, where the auditor raises its audit fees due to a perceived increase in audit engagement risk. The results indicate an average marginal increase of 12.86% in audit fees in the year following the public revelation of financial fraud. Additional analyses suggest that an auditor-side effect is in place, while we cannot find clear evidence supporting the client-side effect. Furthermore, we document that the positive effect on audit fees persists for up to at least 2 years after public disclosure of the event when the interlocked director serves as a member of the audit committee.
The effects of board interlocks with an allegedly fraudulent company on audit fees
Ivanova, Mariya N.
;Prencipe, Annalisa
2023
Abstract
Drawing on prior literature on audit fees, client reputation, and corporate governance, we posit that a material adverse event at a firm, such as a financial fraud allegation, leads to an increase in the audit fees of firms connected to the former by a board interlock. We propose two possible mechanisms to explain the upward pressure on audit fees: a client-side effect, where the client demands additional audit services, and an auditor-side effect, where the auditor raises its audit fees due to a perceived increase in audit engagement risk. The results indicate an average marginal increase of 12.86% in audit fees in the year following the public revelation of financial fraud. Additional analyses suggest that an auditor-side effect is in place, while we cannot find clear evidence supporting the client-side effect. Furthermore, we document that the positive effect on audit fees persists for up to at least 2 years after public disclosure of the event when the interlocked director serves as a member of the audit committee.File | Dimensione | Formato | |
---|---|---|---|
acceptance letter JAAF.pdf
non disponibili
Descrizione: Lettera di accettazione dell'Editor rivista JAAF
Tipologia:
Allegato per valutazione Bocconi (Attachment for Bocconi evaluation)
Licenza:
NON PUBBLICO - Accesso privato/ristretto
Dimensione
131.01 kB
Formato
Adobe PDF
|
131.01 kB | Adobe PDF | Visualizza/Apri |
0148558x20971947.pdf
accesso aperto
Descrizione: Paper pubblicato online sul sito della rivista
Tipologia:
Pdf editoriale (Publisher's layout)
Licenza:
Creative commons
Dimensione
249.36 kB
Formato
Adobe PDF
|
249.36 kB | Adobe PDF | Visualizza/Apri |
I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.