The Impact of Institutional and Governmental Ownership on Audit Fees (Firms Listed in Tehran Stock Exchange)

 
Journal of Accounting Advances (J.A.A)
Vol. 7, No. 1, 2015, Ser. 68/3
 
 
Extended Abstract
 
The Impact of Institutional and Governmental Ownership
 on Audit Fees (Firms Listed in Tehran Stock Exchange)
 
Dr. Esfandiar Malekian                               Bita Nikravan Fard
University of Mazandaran
 
Introduction
This study investigates the impact of institutional and governmental owners on audit fees in listed companies of Tehran Stock Exchange. Audit fees depend on certain features of both the auditor and the client. Researches indicated that ownership structure of client’s company as one of the key components of corporate governance can impact on audit fees through impacting on three descriptive elements such as the risk, size and complexity of the firm. Ownership structure can be examined and classified from various aspects. If we classify the ownership structure as internal and external owners, institutional and governmental owners are the main group of external owners that can be very effective. The nature of owners can impact on the expropriation risk of minority shareholders, effective oversight of the company's major shareholders and in particular financial reporting and therefore audit fee. Also we investigated ownership concentration, because in low investor protection countries, weaker investor protection gives shareholders incentives to maintain more shares to have a better control on managers. Consequently in such countries, ownership is more concentrated; as a result agency conflict between managers and shareholders is reduced, but agency conflicts between concentrated shareholders and minority shareholders will increase. However, the nature of concentrated shareholders is likely to influence the risk of minority expropriation. If concentrated owner is an institution, under the “Active Monitoring Hypothesis”   it can reduce the expropriation risk of minority because of its monitoring role. Thus concentrated institutional shareholders are engaged in the company’s affairs including the financial accounting and reporting process which is likely to reduce the inherent risk of material misstatements in financial reporting. Hence this low-risk situation leads to lower engagement efforts from auditors and a lower risk premium, therefore, audit fees should decrease in such firms. But under the “Private Benefits Hypothesis” institutions may not have incentives to encourage the director for qualified and clear financial reporting to the market. This situation can lead to higher audit fees. Governmental ownership represents a hybrid of dispersed and concentrated ownership. Although governmental-owned corporations formally have very concentrated ownership, they ultimately belong to people of the country, and so ultimate ownership is extremely dispersed, so it leads to higher audit fees. Presence of the government in a company is a signal of reputation of firm in the market, so the auditors will decrease the scope of auditing and then audit fees. So in this study we investigated ownership structure from two aspects of concentration and nature of concentrated ownership; 74 listed companies in Tehran Stock Exchange in the years of 1386-1390 were chosen as a sample.
 
Research Hypotheses
According to theoretical background, our hypotheses are as follows:
1.1. Institutional ownership has a significant impact on audit fees.
1.2. Concentrated institutional ownership has a significant impact on audit fees.
2.1. Governmental ownership has a significant impact on audit fees.
2.2. Concentrated governmental ownership has a significant impact on audit fees.
 
Methods
Our statistical population includes all firms listed in Tehran Stock Exchange by the end of fiscal year 1390. With the systematic elimination method based on the statistical criteria for companies, 74 listed companies in the years of 1386-1390 were chosen as a sample. The criteria are as follows:

The fiscal period of the sample firms  ended in Esfand month.
During the investigated period, our sample firms have not changed their fiscal year.
Sample firms are not financial institutions.
The data are available.

For examination of the research hypothesis, we used from the panel data analysis.
Research method is exploring and determining the relationship between dependent and independent variable by using regression and correlation. For statistical analysis and testing our hypothesis, descriptive statistics and inferential statistics are used.
 
Results
Our results showed that level of institutional ownership has a positive significant impact on audit fees; concentrated institutional ownership has a negative significant impact on audit fees. Also we found that the level of governmental ownership has a negative significant impact on audit fees, but concentrated governmental ownership has no significant impact on audit fees.
 
Discussion and Conclusion
According to the results of our first hypothesis, increase in the level of institutional ownership will increase audit fees and increasing in concentrated institutional ownership will decrease audit fees. It is suggested that the presence of institutional owners in firms, due to the value of information for these owners and their inherent characteristics and influence over the management, oblige management to use high quality auditing leading to high audit fees. Also management tries to encourage institutions to invest more in firms by using high quality audit services. Also concentrated institutional ownership is likely to decrease agency conflicts leading to low audit fees.
 According to the results of our second hypothesis, increase in the level of governmental ownership will decrease audit fees because the presence of a governmental owner in a firm will decrease the risk of minority expropriation, signal the reputation to the market and decrease complexity in firm’s affairs.