Multiple large ownership structure, audit committee activity and audit fees

Abstract

PurposeThe 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/approachOne 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.FindingsThe 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/implicationsThe 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 implicationsThe 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/valueThe 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.