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External Auditing, Managerial Monitoring and Firm Valuation: An Empirical Analysis for India

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  • Ghosh, Saibal

Abstract

The paper examines how external auditing and managerial ownership relate to firm valuation. It is argued that both external auditors (which serves as an external monitoring function) and managerial ownership (which serves as an internal monitoring function) affect firm value, while internal monitoring by managers and external monitoring by auditors were viewed as substitutes or complements. After controlling for the effect of exogenous variables, the results reveal the existence of a substitution monitoring effect between auditors and the managerial group. Additionally, firm valuation is found to be a significant determinant of managerial ownership. A disaggregated analysis of firms according to size and leverage suggests the existence of a complementary monitoring effect between auditors and managers, especially for low-leveraged firms.

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File URL: http://mpra.ub.uni-muenchen.de/17142/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17142.

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Date of creation: Mar 2007
Date of revision:
Publication status: Published in International Journal of Auditing 1.11(2007): pp. 1-15
Handle: RePEc:pra:mprapa:17142

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Related research

Keywords: corporate governance; external auditing; managerial ownership; adjusted Q; India;

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References

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  1. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
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  3. 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.
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  7. Caprio,Gerard & Honohan,Patrick & Stiglitz,Joseph E. (ed.), 2006. "Financial Liberalization," Cambridge Books, Cambridge University Press, number 9780521030991, October.
  8. Chhibber, Pradeep K & Majumdar, Sumit K, 1999. "Foreign Ownership and Profitability: Property Rights, Control, and the Performance of Firms in Indian Industry," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 209-38, April.
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  12. Craswell, Allen & Stokes, Donald J. & Laughton, Janet, 2002. "Auditor independence and fee dependence," Journal of Accounting and Economics, Elsevier, vol. 33(2), pages 253-275, June.
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  14. Tarun Khanna & Krishna Palepu, 2000. "Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups," Journal of Finance, American Finance Association, vol. 55(2), pages 867-891, 04.
  15. McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
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  17. Moyer, R. Charles & Chatfield, Robert E. & Sisneros, Phillip M., 1989. "Security Analyst Monitoring Activity: Agency Costs and Information Demands," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(04), pages 503-512, December.
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  19. Saibal Ghosh, 2006. "Do board characteristics affect corporate performance? Firm-level evidence for India," Applied Economics Letters, Taylor & Francis Journals, vol. 13(7), pages 435-443.
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  21. Ghosh, Saibal & Sensarma, Rudra, 2004. "Does monetary policy matter for corporate governance? Firm-level evidence for India," MPRA Paper 19756, University Library of Munich, Germany.
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Citations

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Cited by:
  1. Chen, Chen-Wen & Liu, Victor W., 2013. "Corporate governance under asymmetric information: Theory and evidence," Economic Modelling, Elsevier, vol. 33(C), pages 280-291.
  2. Ghosh, Saibal, 2010. "Firm Ownership Type, Earnings Management and Auditor Relationships: Evidence from India," MPRA Paper 30322, University Library of Munich, Germany.
  3. Mazlina Mustapha & Ayoib Che Ahmad, 2011. "Agency theory and managerial ownership: evidence from Malaysia," Managerial Auditing Journal, Emerald Group Publishing, vol. 26(5), pages 419-436, May.

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