Cédric Lesage

Audit pricing and nature of controlling shareholders: Evidence from France

This study examines whether auditors are employed as a monitoring mechanism to mitigate agency problems arising from different types of controlling shareholders. In a context of concentrated ownership and poor investor protection, controlling shareholders can easily expropriate wealth from minority shareholders and profit from private benefits of control. However, this agency conflict has been rarely studied, as the most commonly assumed agency conflict occurs between managers and shareholders. Using an audit fee model derived from Simunic (1980), we study the impact of the nature of controlling shareholders on audit fees in French listed firms. Our results show: (1) a negative relationship between audit fees and government shareholdings; (2) a positive relationship between audit fees and institutional shareholdings; and (3) no relationship between audit fees and family shareholdings. These results illustrate the mixed effects of the nature of ownership on audit fees.

Is Joint Audit Bad or Good? Efficiency Perspective Evidence from Three European Countries

There is a constant questioning about the interest of introducing the joint audit. Very recently, the European Commission has raised this topic in its Green Paper, arguing that it may be a way to increase audit quality after the financial crisis and to mitigate audit market concentration, by enlarging the audit offer. However, the joint audit also faces strong resistance, consisting mainly in arguing an unbearable additional cost. This work tries to participate to the current debate by providing evidence based on the new institutional economics criteria of efficiency (i.e. cost or quality) that is relevant to justify an institutional mechanisms change. We run our main analysis on the Danish context (2005-2009), which gave up the mandatory joint audit in 2005. This change in regulation therefore provides a unique natural field to study the impact of joint audit within the same institutional setting. We test the impact of joint audit on both audit costs proxied by audit fees or total fees and audit quality proxied by abnormal accruals. Our results confirm the non significance of the association between total fees and joint audit, and between abnormal accrual and joint audit. We evidence a positive and significant relationship between audit fees and joint audit. Then we run an additional study on a matched French-German sample to capture the impact of a mandatory joint audit. France is characterized by a long tradition of joint audit while Germany has always experienced a single audit system. This additional analysis confirms the main result analysis. The results are of interest for regulators and actors in the audit market.

Consequences of the Abandonment of Mandatory Joint Audit: An Empirical Study of Audit Costs and Audit Quality Effects

Abstract This paper focuses on the unique Danish setting in examining the consequences of abandoning a mandatory joint audit regime. We study the effects on audit costs (measured by audit fees) and audit quality (measured by abnormal accruals) of the abandonment of the mandatory joint audit in Denmark in 2005. We perform our analysis on non-financial listed Danish companies for the 2002–2010 period. Our results show that a joint audit is associated with higher fees, but that the association between joint audit and abnormal accruals is insignificant. This suggests that the higher audit fees cannot be explained by higher audit quality. Our results are robust to alternative measurements of fees and audit quality. Additional analyses show that the fee premium related to a joint audit decreases over time and that the Big 4 concentration in our sample has increased since the switch from mandatory to voluntary joint audit. Our results are consistent with the motivations driving the regulatory change in Denmark and are of interest to regulators and actors in the audit market.

Disciplinary practices in the French auditing profession

Purpose - – The purpose of this paper is to contribute to understand the role of the statutory auditing profession in France. The study is theoretically based on distinctions between a functionalist view of professions and a neo-weberian view. Prior research, conducted in Anglo-American countries has shown that the auditing profession has focussed primarily on protecting the private interests of the profession. Hence, there is a need to conduct research on this topic in a code law country where the state is expected to play a significant role in protecting the public interest. Design/methodology/approach - – The methodology involves a content analysis of 148 disciplinary decisions issued against statutory auditors in France from 1989 to 2006. This analysis identified 21 types of violations grouped into public interest or private interest offences. Because visible offences are public and are more likely to threaten the reputation of the profession, these types of decisions are also studied with respect to their visibility. Findings - – The results reveal that in a code law country such as France the auditing profession tends to defend both the public interest as well as its private interests. The results also support the “visibility” effect. Research limitations/implications - – The written disciplinary decisions have been anonymized so that the names of the auditors and the clients cannot be identified. Originality/value - – This paper differs from previous studies conducted in the Anglo-American context which show an emphasis on protecting the private interests of the auditing profession. Moreover, this study reveals the existence of “mixed” offences and underlines that a profession primarily focusses on these cases. Thus, the work reconciles in part the functionalist and neo-weberian perspectives. Lastly, this paper confirms the importance of the visibility effect.

Blockholders’ Ownership and Audit Fees: The Impact of the Corporate Governance Model

Abstract This paper examines how two prominent corporate governance models, namely the shareholder and stakeholder models, have different effects on the relation between agency conflicts and the supply, and demand of audit services. Shareholder (stakeholder) countries rely heavily on public (private) information to reduce information asymmetry for outside investors in the context of high (low) litigation risk. We expect audit fees to reflect the level of agency conflicts in shareholder countries as well as the needs for information of the major blockholders in stakeholder countries. Using a sample of 7982 firm-year observations from 19 countries, we find a U-shaped relation between controlling shareholding and audit fees for shareholder countries and an inverted U-shaped relation between controlling shareholding and audit fees for stakeholder countries. These results are consistent across different firm-level governance arrangements.