Impact of excess auditor remuneration on the cost of equity capital around the world
- Authors
- Hope, O.-K.; Kang, T.; Thomas, W.B.; Yoo, Y.K.
- Issue Date
- 2009
- Publisher
- SAGE Publications Ltd
- Citation
- Journal of Accounting, Auditing and Finance, v.24, no.2, pp.177 - 210
- Indexed
- SCOPUS
- Journal Title
- Journal of Accounting, Auditing and Finance
- Volume
- 24
- Number
- 2
- Start Page
- 177
- End Page
- 210
- URI
- https://scholar.korea.ac.kr/handle/2021.sw.korea/121951
- DOI
- 10.1177/0148558X0902400203
- ISSN
- 0148-558X
- Abstract
- This study examines the relation between excess auditor remuneration and the implied required rate of return (IRR hereafter) on equity capital in global markets. We conjecture that when auditor remuneration is excessively large, investors may perceive the auditor to be economically bonded to the client, leading to a lack of independence. This perceived lack of independence increases the information risk associated with the credibility of financial statements, thereby increasing IRR. Consistent with this notion, we find that IRR is increasing in excess auditor remuneration, but only in countries with stronger investor protection. Finding evidence of a relation only in stronger investor protection countries is consistent with the more prominent role of audited financial statements for investors' decisions in these countries. In settings in which investors are less likely to rely on audited financial statements and instead rely on alternative sources of information (i.e., in countries with weaker investor protection), the impact of client-auditor bonding should have less of an effect on investors' decisions.
- Files in This Item
- There are no files associated with this item.
- Appears in
Collections - Korea University Business School > Department of Business Administration > 1. Journal Articles
Items in ScholarWorks are protected by copyright, with all rights reserved, unless otherwise indicated.