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Institutional investors, stewardship code disclosures and audit fees

Institutional investors, stewardship code disclosures and audit fees This study uses content analysis of disclosures under the Japanese Stewardship Code to examine how investee company audit fees are influenced by institutional investor governance.Design/methodology/approachScores are developed based on objective and verifiable Code disclosures made by the top-five institutional investors of Nikkei 225 index companies. The scores are related to management of conflicts of interest, monitoring actions and resource availability connected with stewardship.FindingsThe results show that higher scores on monitoring and resource availability are associated with lower audit fees. The extent of resources that institutional investors allocate to playing an effective stewardship role is found to be the primary determinant of their influence on audit fees. Overall, the findings are consistent with governance by institutional investors reducing audit risk and audit effort, which leads to lower audit fees.Originality/valueThe study offers new insights because there is no apparent prior research that uses Code disclosure content to measure institutional investor governance. This provides new information on the open question of the relation between audit fees and institutional investor governance. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Asian Review of Accounting Emerald Publishing

Institutional investors, stewardship code disclosures and audit fees

Routledge, James
Asian Review of Accounting , Volume 29 (1): 18 – Jan 20, 2021
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18 pages

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1321-7348
DOI
10.1108/ara-05-2020-0082
Publisher site
See Article on Publisher Site

Abstract

This study uses content analysis of disclosures under the Japanese Stewardship Code to examine how investee company audit fees are influenced by institutional investor governance.Design/methodology/approachScores are developed based on objective and verifiable Code disclosures made by the top-five institutional investors of Nikkei 225 index companies. The scores are related to management of conflicts of interest, monitoring actions and resource availability connected with stewardship.FindingsThe results show that higher scores on monitoring and resource availability are associated with lower audit fees. The extent of resources that institutional investors allocate to playing an effective stewardship role is found to be the primary determinant of their influence on audit fees. Overall, the findings are consistent with governance by institutional investors reducing audit risk and audit effort, which leads to lower audit fees.Originality/valueThe study offers new insights because there is no apparent prior research that uses Code disclosure content to measure institutional investor governance. This provides new information on the open question of the relation between audit fees and institutional investor governance.

Journal

Asian Review of Accounting – Emerald Publishing

Published: Jan 20, 2021

Keywords: Japan; Governance; Institutional investors; Stewardship; Audit fees

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