Giorgio Gotti

Managerial Stock Ownership, Analyst Coverage, and Audit Fee

The authors study whether managerial ownership and analyst coverage relate to audit fees. To the extent that these corporate governance factors relate to auditor assessment of the firm’s agency costs and hence various risks the auditor must consider in the development of an audit program, they will affect audit effort and hence audit fees. The authors find that managerial equity holdings and analyst coverage are negatively associated with audit fees and that these associations are both statistically and economically significant. On average, a 1% increase in managerial ownership translates into a 0.2% reduction in audit fees. In the low managerial ownership sample (i.e., less than 5% managerial ownership), a 1% increase in the ownership reduces the fees by 1.4%. Similarly, one more analyst following a company reduces audit fees by 9.3%. These results add to the literature on the effects of corporate governance on audit fees.

Managerial Ownership, Corporate Monitoring and Audit Fee

We study whether managerial ownership and analyst coverage relate to audit fee. To the extent that these corporate governance factors relate to auditor assessment of the firm’s agency costs and hence various risks the auditor must consider in the development of an audit program, they will affect audit effort and hence audit fee. We find that managerial equity holdings and analyst coverage are negatively associated with audit fee and that these associations are both statistically and economically significant. On average, one percent increase in managerial ownership translates into 0.2% reduction in audit fees. In the low managerial ownership sample (i.e., less than 5% managerial ownership), one percent increase in the ownership reduces the fees by 1.4%. Similarly, one more analysts following reduces audit fees by 9.3%. These results add to the literature on the effects of corporate governance on audit fees.

Language FTR and Earnings Management: International Evidence

We study whether a particular aspect of language structure, the future-time reference (FTR) of a language, explains variation in corporate earnings management behaviors around the world. Based on the Sapir-Whorf hypothesis (Whorf 1956), we predict that grammatically referencing the future, which induces humans to perceive the future more sharply distinct from the present, induces myopic management behavior. In support of this idea, we find that firms headquartered in strong-FTR language countries are more likely to engage in accrual and real activities earnings management to meet short-term earning benchmarks.