Multiple large ownership structure, audit committee activity and audit fees: Evidence from the UK
Abstract
Purpose
The purpose of this study is to examine the impact of multiple large ownership structure (MLS) and audit committee activity (ACA) on audit pricing for a sample of UK listed companies.
Design/methodology/approach
One way analysis of variance (ANOVA) and cross sectional multiple regression analysis of a sample of UK listed companies showed statistically significant differences in the audit fees, firm size and audit committee activities of these firms when they are categorised based on the number of MLS.
Findings
The study finds a significant negative relationship between audit fees and number of MLS, but a surprising positive relationship with ACA. The findings confirm the beneficial effects of more active institutional investors’ monitoring, but also show that increasing monitoring by audit committees is associated with increase in audit fees.
Research limitations/implications
The results reported in this research are based on cross sectional data. It is likely that the result may be different if the issue is examined over a relatively longer period.
Practical implications
The study showed that monitoring intensity of the large shareholders can be captured through their number and not simply through their shareholding. It also confirms the suggestion in previous studies that audit committees’ members protect themselves from depletion in human capital, litigation and reputational risk by buying more audit related services from their auditors.
Originality/value
The study empirically examined the impact of multiple large ownership structure on audit pricing and thereby extends the practical and theoretical understanding on the monitoring roles of large shareholders as well as the audit committees.
Keywords
Citation
Adelopo, I., Jallow, K. and Scott, P. (2012), "Multiple large ownership structure, audit committee activity and audit fees: Evidence from the UK", Journal of Applied Accounting Research, Vol. 13 No. 2, pp. 100-121. https://doi.org/10.1108/09675421211254821
Publisher
:Emerald Group Publishing Limited
Copyright © 2012, Emerald Group Publishing Limited