The Impact of the Market for Corporate Control on Audit Fees : Evidence from International M&A Laws

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)32_Refereed conference paper (no ISBN/ISSN)peer-review

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Detail(s)

Original languageEnglish
Publication statusPublished - Jun 2019

Conference

Title2019 Korean Accounting Association Annual Conference and Asian Accounting Associations (AAAs) Conference (2019 KAA and AAAs)
PlaceKorea, Republic of
CityGyeongju
Period21 - 22 June 2019

Abstract

This paper investigates whether and how external governance from the market for corporate control affects audit pricing in a cross-country setting. We exploit the staggered enactments of international M&A laws as an exogenous shock that increases takeover pressure substantially. Using a difference-indifferences design, we find that audit fees decrease significantly after the passage of M&A laws. This is because the external governance strengthened by the takeover law enactments reduces the ex-ante agency risk perceived by auditors and shareholders, which in turn decreases clients’ misstatement risk and auditor litigation risk and thus reduces audit fees. We find that the disciplinary effect of M&A laws is more pronounced in countries with more intensive takeover activities and in clients with high agency costs. We further find that Big 4 premium is significantly reduced after the passage of M&A laws. These findings help us better understand the interactive role of the market for corporate control and external auditing in shaping the corporate governance mosaic.

Research Area(s)

  • audit fee, international M&A laws, agency risk, misstatement risk, litigation risk

Citation Format(s)

The Impact of the Market for Corporate Control on Audit Fees : Evidence from International M&A Laws. / Choi, Ahrum ; Kim, Jeong-Bon; Lee, Jay Junghun; Park, Jong Chool.

2019. Paper presented at 2019 Korean Accounting Association Annual Conference and Asian Accounting Associations (AAAs) Conference (2019 KAA and AAAs), Gyeongju, Korea, Republic of.

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)32_Refereed conference paper (no ISBN/ISSN)peer-review