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

Ahrum Choi, Jeong Bon Kim, Jay Junghun Lee, Jong Chool Park

    Research output: Contribution to conferenceConference paper

    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-in-differences 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.
    Original languageEnglish
    Number of pages51
    Publication statusPublished - Jun 2019
    Event2019 Korean Accounting Association Annual Conference and Asian Accounting Associations (AAAs) Conference - The K-Hotel, Gyeongju, Korea, Republic of
    Duration: 21 Jun 201922 Jun 2019
    https://www.conf.tw/site/page.aspx?pid=901&sid=1277&lang=en
    https://kiss.kstudy.com/Detail/Jr?Ins=3440&Jur=29891&Vol=2019&Num=1

    Conference

    Conference2019 Korean Accounting Association Annual Conference and Asian Accounting Associations (AAAs) Conference
    Country/TerritoryKorea, Republic of
    CityGyeongju
    Period21/06/1922/06/19
    Internet address

    User-Defined Keywords

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

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