Institutional Monitoring, Political Connections and Audit Fees: Evidence from Malaysian Firms. Issue 2 (22nd January 2017)

• Record Type: Journal Article
• Authors: Tee, Chwee Ming; Gul, Ferdinand A.; Foo, Yee‐Boon; Teh, Chee Ghee
• Is Part Of: International journal of auditing. Volume 21:Issue 2(2017)
• Page Start: 164
• Page End: 176
• Publication Date: 2017-01-22
• Subjects: Institutional ownership -- institutional domiciles -- political connections -- audit fees; Auditing -- Periodicals; 647.45
• DOI: 10.1111/ijau.12086
• Languages: English
• ISSNs: 1090-6738

Abstract

Abstract : This study employs data on Malaysian firms from 2003 to 2011 to show that ownership by institutional investors is positively associated with audit fees, and this positive association is stronger for firms that are politically connected to the Malaysian government. The results of this study are aligned with the theories that institutional investors can play an effective monitoring role by demanding higher audit quality, particularly if their investee firms are politically connected. Additional tests reveal that the main results are largely driven by foreign institutional investors, while it is insignificant for local institutional investors. Therefore, our evidence suggests that institutional investors, particularly foreign institutions, demand increased audit effort (proxied by audit fees) as a method to monitor politically connected firms.