The Association between Institutional Ownership and Audit Properties

In this study, we examine how institutional ownership affects the quality and riskiness of the financial statement audit. We hypothesize that institutional investors can influence corporate policy to employ governance mechanisms that reduce their monitoring costs. Our evidence shows that firms are m...

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Main Authors: HAN, Soongsoo (Sam), Kang, Tony, Rees, Lynn
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2009
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Online Access:https://ink.library.smu.edu.sg/soa_research_smu/3
https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1002&context=soa_research_smu
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spelling sg-smu-ink.soa_research_smu-10022018-07-09T06:09:37Z The Association between Institutional Ownership and Audit Properties HAN, Soongsoo (Sam) Kang, Tony Rees, Lynn In this study, we examine how institutional ownership affects the quality and riskiness of the financial statement audit. We hypothesize that institutional investors can influence corporate policy to employ governance mechanisms that reduce their monitoring costs. Our evidence shows that firms are more likely to hire a Big 4 auditor (our proxy for audit quality) when long-term institutional ownership is high, suggesting that long-term institutional investors view high quality audits as a viable means of improving corporate governance while reducing their direct monitoring costs. We find no association between auditor choice and short-term institutional ownership. Next, we find that auditors charge higher fees (our proxy for audit risk) when short-term institutional ownership is high, consistent with short-term investors creating greater incentives for managers to act myopically. We find no association between audit fees and long-term institutional ownership. Taken together, our evidence suggests that dedicated long-term institutional investors demand higher quality audits to enhance corporate monitoring, and that short-term institutional ownership is positively associated with higher audit risk. 2009-03-01T08:00:00Z text application/pdf https://ink.library.smu.edu.sg/soa_research_smu/3 https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1002&context=soa_research_smu http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Accountancy (SMU Access Only) eng Institutional Knowledge at Singapore Management University Audit quality Institutional ownership Monitoring Audit risk Corporate governance Business Law, Public Responsibility, and Ethics Corporate Finance
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Audit quality
Institutional ownership
Monitoring
Audit risk
Corporate governance
Business Law, Public Responsibility, and Ethics
Corporate Finance
spellingShingle Audit quality
Institutional ownership
Monitoring
Audit risk
Corporate governance
Business Law, Public Responsibility, and Ethics
Corporate Finance
HAN, Soongsoo (Sam)
Kang, Tony
Rees, Lynn
The Association between Institutional Ownership and Audit Properties
description In this study, we examine how institutional ownership affects the quality and riskiness of the financial statement audit. We hypothesize that institutional investors can influence corporate policy to employ governance mechanisms that reduce their monitoring costs. Our evidence shows that firms are more likely to hire a Big 4 auditor (our proxy for audit quality) when long-term institutional ownership is high, suggesting that long-term institutional investors view high quality audits as a viable means of improving corporate governance while reducing their direct monitoring costs. We find no association between auditor choice and short-term institutional ownership. Next, we find that auditors charge higher fees (our proxy for audit risk) when short-term institutional ownership is high, consistent with short-term investors creating greater incentives for managers to act myopically. We find no association between audit fees and long-term institutional ownership. Taken together, our evidence suggests that dedicated long-term institutional investors demand higher quality audits to enhance corporate monitoring, and that short-term institutional ownership is positively associated with higher audit risk.
format text
author HAN, Soongsoo (Sam)
Kang, Tony
Rees, Lynn
author_facet HAN, Soongsoo (Sam)
Kang, Tony
Rees, Lynn
author_sort HAN, Soongsoo (Sam)
title The Association between Institutional Ownership and Audit Properties
title_short The Association between Institutional Ownership and Audit Properties
title_full The Association between Institutional Ownership and Audit Properties
title_fullStr The Association between Institutional Ownership and Audit Properties
title_full_unstemmed The Association between Institutional Ownership and Audit Properties
title_sort association between institutional ownership and audit properties
publisher Institutional Knowledge at Singapore Management University
publishDate 2009
url https://ink.library.smu.edu.sg/soa_research_smu/3
https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1002&context=soa_research_smu
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