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Institutional investors, political connection and audit quality in Malaysia

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Author Info

  • Effiezal Aswadi Abdul Wahab
  • Mazlina Mat Zain
  • Kieran James
  • Hasnah Haron
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    Abstract

    Purpose – The purpose of this paper is to extend the audit pricing literature by examining whether institutional investors and political connection are associated with higher audit fees. Design/methodology/approach – Both descriptive and multivariate analyses are employed to address the research objectives. In addition, the authors use panel data to control for both heterocedasticity and contemporaneous correlations in each cross-section. Findings – Based on a panel analysis of 390 Malaysian firms from 1999 to 2003, a positive relationship between institutional ownership and audit fees is found, although the economic impact is minimal. Further, the authors find that audit fees are higher for politically connected firms. Research limitations/implications – A thorough examination on the role of political connection is much warranted to provide a better understanding on such connection influences the audit market. Originality/value – This paper provides an alternative view on the role of political connection, and on how they influence the audit market.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Accounting Research Journal.

    Volume (Year): 22 (2009)
    Issue (Month): 2 (September)
    Pages: 167-195

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    Handle: RePEc:eme:arjpps:v:22:y:2009:i:2:p:167-195

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    Related research

    Keywords: Auditor's fees; Investors; Malaysia; Organizations; Political systems;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Wahal, Sunil & McConnell, John J., 2000. "Do institutional investors exacerbate managerial myopia?," Journal of Corporate Finance, Elsevier, vol. 6(3), pages 307-329, September.
    2. Del Guercio, Diane, 1996. "The distorting effect of the prudent-man laws on institutional equity investments," Journal of Financial Economics, Elsevier, vol. 40(1), pages 31-62, January.
    3. Rasiah, Rajah & Shari, Ishak, 2001. "Market, Government and Malaysia's New Economic Policy," Cambridge Journal of Economics, Oxford University Press, vol. 25(1), pages 57-78, January.
    4. Jenny Goodwin-Stewart & Pamela Kent, 2006. "Relation between external audit fees, audit committee characteristics and internal audit," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 46(3), pages 387-404.
    5. Chung, Richard & Firth, Michael & Kim, Jeong-Bon, 2002. "Institutional monitoring and opportunistic earnings management," Journal of Corporate Finance, Elsevier, vol. 8(1), pages 29-48, January.
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    7. Francis, Jere R., 1984. "The effect of audit firm size on audit prices : A study of the Australian Market," Journal of Accounting and Economics, Elsevier, vol. 6(2), pages 133-151, August.
    8. Santanu Mitra & Mahmud Hossain & Donald Deis, 2007. "The empirical relationship between ownership characteristics and audit fees," Review of Quantitative Finance and Accounting, Springer, vol. 28(3), pages 257-285, April.
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    10. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-83, June.
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    12. Craswell, Allen T. & Francis, Jere R. & Taylor, Stephen L., 1995. "Auditor brand name reputations and industry specializations," Journal of Accounting and Economics, Elsevier, vol. 20(3), pages 297-322, December.
    13. Andrew Ferguson, 2005. "A Review of Australian Audit Pricing Literature," Accounting Research Journal, Emerald Group Publishing, vol. 18(2), pages 54-62, September.
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    16. Simon Johnson & Todd Mitton, 2001. "Cronyism and Capital Controls: Evidence from Malaysia," NBER Working Papers 8521, National Bureau of Economic Research, Inc.
    17. Stijn Claessens & Joseph P. H. Fan, 2002. "Corporate Governance in Asia: A Survey," International Review of Finance, International Review of Finance Ltd., vol. 3(2), pages 71-103.
    18. DeAngelo, Linda Elizabeth, 1981. "Auditor size and audit quality," Journal of Accounting and Economics, Elsevier, vol. 3(3), pages 183-199, December.
    19. Joseph P. H. Fan & T. J. Wong, 2005. "Do External Auditors Perform a Corporate Governance Role in Emerging Markets? Evidence from East Asia," Journal of Accounting Research, Wiley Blackwell, vol. 43(1), pages 35-72, 03.
    20. Kane, Gregory D. & Velury, Uma, 2004. "The role of institutional ownership in the market for auditing services: an empirical investigation," Journal of Business Research, Elsevier, vol. 57(9), pages 976-983, September.
    21. R.M. Haniffa & T. E. Cooke, 2002. "Culture, Corporate Governance and Disclosure in Malaysian Corporations," Abacus, Accounting Foundation, University of Sydney, vol. 38(3), pages 317-349.
    22. W. Robert Knechel & Marleen Willekens, 2006. "The Role of Risk Management and Governance in Determining Audit Demand," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(9-10), pages 1344-1367.
    23. Shleifer, Andrei & Vishny, Robert W., 1986. "Large Shareholders and Corporate Control," Scholarly Articles 3606237, Harvard University Department of Economics.
    24. Ferdinand A. Gul, 2006. "Auditors' Response to Political Connections and Cronyism in Malaysia," Journal of Accounting Research, Wiley Blackwell, vol. 44(5), pages 931-963, December.
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