Stakeholder management and audit fees

Document Type : Research Paper

Authors

1 Department of Accounting, Shahid Bahonar University of Kerman, Kerman, Iran

2 Department of Accounting, University of Meybod, Meybod, Iran

Abstract

The main purpose of this study is to investigate the relationship between corporate stakeholder management and audit fees. In addition, the impact of management compensation and audit quality has been tested on this relationship. This article uses regression analysis to test its hypotheses to a sample of 1,626 firms -year observations in the Tehran Stock Exchange (TSE) during 2011-2020. Results show a negative association between stakeholder management and audit fees. It can be concluded that effective stakeholder management reduces client risks. This finding is also consistent with agency theory that predicts agency problems lead to higher audit fees and vice versa. We also find that more management compensation and higher audit quality strengthen the negative association between stakeholder management and audit fees. Therefore, these variables can be considered important mechanisms to strengthen more effective stakeholder management. This study is the first study that empirically examines the association between stakeholder management and audit fees. Moreover, the moderating impact of management compensation and audit quality has been tested on the association between stakeholder management and audit fees. Finally, we use an interdisciplinary approach and use management literature to contribute to audit fee literature.

Keywords

Main Subjects

References

Agle, B. D. T. F. R. J. M. M. R. &. W. D. (2008). Dialogue: Toward Superior Stakeholder Theory. Business Ethics Quarterly, 18(2), pp. 153-190.
Al‐Harshani, M. (2008). The pricing of audit services: evidence from Kuwait. Managerial Auditing Journal, 23(7), pp. 685-696.
Al-Okaily, J. (2020). The effect of family control on audit fees during financial crisis. Managerial Auditing Journal, 35(5), pp. 645-665.
Baker, C. & Owsen, D. (2002). Increasing the role of auditing in corporate governance. Critical Perspectives on Accounting, 13(5-6), pp. 783-795.
Barroso, R., Ben Ali, C. & Lesage, C. (2018). Blockholders' ownership and audit fees: The impact of the corporate governance model. European Accounting Review, 27(1), pp. 149-172.
Bell, T. B., Landsman, W. R. & Shackelford, D. A. (2001). Auditors' perceived business risk and audit fees: Analysis and evidence. Journal of Accounting Research, 39(1), pp. 35-43.
Choi, A., Sohn, B. & Yuen, D. (2018). Do auditors care about real earnings management in their audit fee decisions?. Asia-Pacific Journal of Accounting & Economics, 25(1-2), pp. 21-41.
Choi, J., Kim, C., Kim, J. & Zang, Y. (2010). Audit office size, audit quality, and audit pricing. AUDITING: A Journal of Practice & Theory , 29(1), pp. 73-97.
Clarkson, M. (1995). A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance. Academy of Management Review, 20(1), pp. 92-117.
Davidson, R. & Neu, D. (1993). A note on the association between audit firm size and audit quality. Contemporary Accounting Research, 9(2), pp. 479-488.
Demirkan, S. & Platt, H. (2009). Financial status, corporate governance quality, and the likelihood of managers using discretionary accruals. Accounting Research Journal, 22(2), pp. 93-117.
Du, S., Xu, X. & Yu, K. (2020). Does corporate social responsibility affect auditor-client contracting? Evidence from auditor selection and audit fees. Advances in accounting, 51, pp. 1-15.
Fassin, Y. (2008). Imperfections and shortcomings of the stakeholder model’s graphical representation. Journal of Business Ethics, 80(1), pp. 879-888.
Foo, L. (2007). Stakeholder engagement in emerging economies: considering the strategic benefits of stakeholder management in a cross‐cultural and geopolitical context. Corporate Governance, 7(4), pp. 379-387.
Freeman, R. E., Harrison, J. S. & Wicks, A. C. (2007). Managing for stakeholders: Survival, reputation, and success. New Haven: Yale University Press. .
Garcia, J., de Villiers, C. & Li, L. (2021). Is a client's corporate social responsibility performance a source of audit complexity?. International Journal of Auditing, 25(1), pp. 75-102.
Greenley, G. & Foxall, G. (1997). Multiple stakeholder orientation in UK companies and the implications for company performance. Journal of Management Studies, 34(2), pp. 259-284.
Greiner, A., Kohlbeck, M. & Smith, T. J. (2017). The Relationship between Aggressive Real Earnings Management and Current and Future Audit Fees. AUDITING: A Journal of Practice & Theory , 36(1), pp. 85-107.
Griffin, P. A., Lont, D. H. & Sun, Y. (2008). Corporate governance and audit fees: evidence of countervailing relations. Journal of Contemporary Accounting and Economics, 4(1), pp. 18-49.
Gul, F. & Ng, A. (2018). Auditee religiosity, external monitoring, and the pricing of audit services. Journal of business ethics, Volume 152, pp. 409-436.
Gul, F., Khedmati, M., Lim, E. & Navissi, F. (2018). Managerial Ability, Financial Distress, and Audit Fees. Accounting Horizons, 32(1), pp. 29-51.
Gutierrez, E., Minutti-Meza, M., Tatum, K. W. & Vulcheva, M. (2018). Consequences of adopting an expanded auditor’s report in the United Kingdom. Review of Accounting Studies, Volume 23, p. 1543–1587.
Harrison, J. S., Bosse, D. A. & Phillips, R. A. (2010). Managing for stakeholders, stakeholder utility functions and competitive advantage. Strategic Management Journal, 31(1), pp. 58-74.
Harrison, J. S. & Wicks, A. (2013). Stakeholder theory, Value and Firm Performance. Business Ethics Quarterly, 23(1), pp. 97-124.
Hay, D., Knechel, W. & Wong, N. (2006). Audit fees: A meta‐analysis of the effect of supply and demand attributes. Contemporary accounting Research, 23(1), pp. 141-191.
Hilman, A. J. & Keim, G. D. (2001). Shareholder value, stakeholder management, and social issues: What's the bottom line?. Strategic Management Journal, 22(2), pp. 125-139.
Hope, O., Langli, J. & Thomas, W. (2012). Agency conflicts and auditing in private firms. Accounting, Organizations and Society, 37(7), pp. 500-517.
Houston, R., Peters, M. & Pratt, j. H. (1999). The audit risk model, business risk and audit‐planning decisions. The Accounting Review, 74(3), pp. 281-298.
IAASB. (2019). ISA 315 (Revised 2019): Identifying and Assessing the Risks of Material Misstatement. https://www.iaasb.org/publications/isa-315-revised-2019-identifying-and-assessing-risks-material-misstatement.
Jensen, M. (2010). Value Maximization, Stakeholder Theory, and the Corporate Objective Function. Journal of Applied Corporate Finance, 14(3), pp. 8-21.
Jensen, M. C. & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure. Journal of Financial Economics, 3(4), pp. 305-360.
Jha, A. & Chen, Y. (2015). Audit Fees and Social Capital. The Accounting Review, 90(2), pp. 611-639.
Khaksar, J., Salehi, M. & Lari DashtBayaz, M. (2022). The relationship between auditor characteristics and fraud detection. Journal of Facilities Management, 20 (1), pp. 79-101.
Khodakarami, M., Rezaee, Z. & Hesarzadeh, R. (2021). Islamic religious atmosphere and audit pricing: evidence from Iran. Business Ethics, Env & Resp, 30(4), pp. 716-737.
Law, P. (2011). Audit regulatory reform with a refined stakeholder model to enhance corporate governance: Hong Kong evidence. Corporate Governance, 11 (2), pp. 123-135.
Leventis, S., Weetman, P. & Caramanis, C. (2011). Agency costs and product market competition: The case of audit pricing in Greece. The British Accounting Review, 43(2), pp. 112-119.
Leventis, S., Dedoulis, E. & Abdelsalam, O. (2018). The impact of religiosity on audit pricing. Journal of Business Ethics, Volume 148, pp. 53-78.
Li, H., Hay, D. & Lau, D. (2019). Assessing the impact of the new auditor’s report. Pacific Accounting Review, 31(1), pp. 110-132.
Loi, T. H. (2016). Stakeholder management: a case of its related capability and performance. Management Decision, 54(1), pp. 148-173.
Lyon, J. & Maher, M. (2005). The importance of business risk in setting audit fees: Evidence from cases of client misconduct. Journal of Accounting Research, 43(1), pp. 133-151.
Mainardes, E. W., Alves, H. & Raposo, M. (2011). Stakeholder theory: issues to resolve. Management Decision, 49(2), pp. 226-252.
Marx, B. & Els, G. (2009). The role of the audit committee in strengthening business ethics and protecting stakeholders' interests. African Journal of Business Ethics, 4(1), pp. 5-15.
Mashayekhi, B. & Mashayekh, S. (2008). Development of accounting in Iran. The International Journal of Accounting, 43(1), pp. 66-86.
Minoja, M., Zollo, M. and Coda, V. (2010). Stakeholder cohesion, innovation, and competitive advantage. Corporate Governance, 10 (4), pp. 395-405.
Mitroff, I. & Emshoff, J. (1979). On Strategic Assumption-Making. Academy of Management Review, 4(1), pp. 1-12.
MohammadRezaei, F., Mohd-Saleh, N. & Ahmed, K. (2018). Audit firm ranking, audit quality and audit fees: Examining conflicting price discrimination views. The International Journal of Accounting, 53(4), pp. 295-313.
Moradi, M., Salehi, M., Tarighi, H. & Saravani, M. (2020). Audit adjustments and corporate financing: evidence from Iran. Journal of Accounting in Emerging Economies, 10 (4), pp. 521-543.
Ntim, C. G., Opong, K. K. & Danbolt, J. (2012). The Relative Value Relevance of Shareholder versus Stakeholder Corporate Governance Disclosure Policy Reforms in South Africa. Corporate Governance: An International Review, 20(1), pp. 84-105.
Öhman, P., Häckner, E., Jansson, A. M. & Tschudi, F. (2006). Swedish auditors' view of auditing: Doing things right versus doing the right things. European Accounting Review, 15(1), pp. 89-114.
Öhman, P., Häckner, E. & Sörbom, D. (2012). Client satisfaction and usefulness to external stakeholders from an audit client perspective. Managerial Auditing Journal, 27(5), pp. 477-499.
Oradi, J. (2021). CEO succession origin, audit report lag, and audit fees: Evidence from Iran. Journal of International Accounting, Auditing and Taxation, 45, pp. article in press.
Orlitzky, M. & Benjamin, J. D. (2001). Corporate social performance and firm risk: A meta-analytic review. Business & Society, 40(4), pp. 369-396.
Randall, K. M. (2007). A History of Corporate Governance around the World. Chicago : The University of Chicago Press.
Reynolds, S. J., Schultz, F. C. & Hekman, D. R. (2006). Stakeholder Theory and Managerial Decision Making: Constraints and Implications of Balancing Stakeholder Interests. Journal of Business Ethics, 64(3), pp. 285-301.
Sachs, S. & Ruhli, E. (2011). Stakeholders matter: A new paradigm for strategy in society. Cambridge : Cambridge University Press.
Salehi, M. (2020). The relationship between the companies’ political connections and audit fees. Journal of Financial Crime, 27 (4), pp. 1123-1141.
Salehi, M., Komeili, F. & Daemi Gah, A. (2019). The impact of financial crisis on audit quality and audit fee stickiness: evidence from Iran. Journal of Financial Reporting and Accounting, 17 (2), pp. 201-221.
Salehi, M., Tarighi, H. & Safdari, S. (2018). The relation between corporate governance mechanisms, executive compensation and audit fees: Evidence from Iran. Management Research Review, 41(8), pp. 939-967.
Salehi, M., Zimon, G. & Seifzadeh, M. (2022). The effect of management characteristics on audit report readability. Economies, 10 (1), pp. 1-23.
Srinidhi, B., He, S. & Firth, M. (2014). The effect of governance on specialist auditor choice and audit fees in US family firms. The Accounting Review, 89(6), pp. 2297-2329.
Stolowy, H. & Breton, G. (2004). Accounts manipulation: A literature review and proposed conceptual framework. Review of Accounting and Finance, 3(1), pp. 5-92.
Sun, L. & Rath, S. (2008). Fundamental determinants, opportunistic behavior and signaling mechanism: an integration of earnings management perspectives. International Review of Business Research Papers, 4(4), pp. 406-420.
Verbeke, A. & Tung, V. (2013). The future of stakeholder management theory: A temporal perspective. Journal of business ethics, 112(3), pp. 529-543.
Wang, H. & Sengupta, S. (2016). Stakeholder relationships, brand equity, firm performance: A resource-based perspective. Journal of Business Research, 69(12), pp. 5561-5568.
Werder, A. V. (2011). Corporate Governance and Stakeholder Opportunism. Organization Science, 22(5), pp. 1345-1358.
Wimelda, L. & Chandra, A. (2018). Opportunistic Behavior, External Monitoring Mechanisms, Corporate Governance, and Earnings Management. Accounting and Finance Review, 3(1), pp. 44-52.
Wommack, W. W. (1979). Wommack, W. W. (1979). Responsibility of the board of directors and management in corporate strategy. Harvard Business Review, 57(5), pp. 48-62.
Wuttichindanon, S. & Issarawornrawanich, P. (2020). Determining factors of key audit matter disclosure in Thailand. Pacific Accounting Review, 32 (4), pp. 563-584.
Wysocki, P. (2010). Corporate compensation policies and audit fees. Journal of Accounting and Economics, 49(1-2), pp. 155-160.
 
Interdisciplinary Journal of Management Studies (Formerly known as Iranian Journal of Management Studies)
Volume 16, Issue 4
October 2023
Pages 843-856

Files

Share

How to cite

Statistics