Susan Parker

An Empirical Investigation of Audit Fees, Nonaudit Fees, and Audit Committees*

This study examines the association between audit committee characteristics and the ratio of nonaudit service (NAS) fees to audit fees, using data gathered under the Securities and Exchange Commissions (SECs) fee disclosure rules. Issues related to NAS fees have been of concern to practitioners, regulators, and academics for a number of years. Prior research suggests that audit committees possessing certain characteristics are important participants in the process of managing the client†auditor relationship. We hypothesize that audit committees that are independent and active financial monitors have incentives to limit NAS fees (relative to audit fees) paid to incumbent auditors, in an effort to enhance auditor independence in either appearance or fact. Our analysis using a sample of 538 firms indicates that audit committees comprised solely of independent directors meeting at least four times annually are significantly and negatively associated with the NAS fee ratio. This evidence is consistent with audit committee members perceiving a high level of NAS fees in a negative light and taking actions to decrease the NAS fee ratio.

Corporate governance and corporate failure: a survival analysis

This study investigates the association of various corporate governance attributes and financial characteristics with the survival likelihood of distressed firms. To address the manner in which firms evolve over time, we employ survival analysis techniques by incorporating Cox Proportional Hazards regressions. We longitudinally track an ex ante sample of 176 financially distressed firms. The results suggest that firms that replaced their CEO with an outsider, were more than twice as likely to experience bankruptcy. Furthermore, larger levels of blockholder and insider ownership over the sample period are positively associated with the likelihood of firm survival.

THE EFFECTS OF POST-BANKRUPTCY FINANCING ON GOING CONCERN REPORTING

Abstract We examine whether auditors appear to use information related to client debtor-in-possession (DIP) financing in the going concern decision. DIP financing consists of post-bankruptcy financing which is positively associated with bankruptcy emergence. Statement on Auditing Standards No. 59 (SAS 59) directs auditors’ attention to debt restructuring to mitigate financial distress. Accordingly, we hypothesize that auditors interpret DIP financing as a mitigating factor and are thus less likely to modify the audit opinions of firms receiving DIP financing. We find that auditors are less likely to issue a modification for clients receiving DIP financing, consistent with auditors treating its receipt as a mitigating factor in the going concern decision.