Organization capital and audit fees around the world

Ahsan Habib*, Mostafa Monzur Hasan, Xuan Sean Sun

*Corresponding author for this work

Research output: Contribution to journalArticle

Abstract

We examine whether auditors consider organization capital in audit pricing decisions. Utilizing an international sample from 40 countries spanning the period 2001–2017, we find that firms with high levels of organization capital pay high audit fees: a finding that is consistent with both the risk‐ and the agency‐based arguments for audit pricing. Additionally, our results indicate that the positive relationship between organization capital and audit fees is reinforced in firms with pronounced business risks and agency problems, whereas it is relatively weak in countries with protective employment legislation. Our study contributes to the voluminous literature on the determinants of audit fees by showing that auditors price the risks related to clients' intangible assets, especially those embodied in a firm's key talents. Our study also contributes to the scarce literature on the effects of organization capital in international markets.
Original languageEnglish
Number of pages26
JournalInternational Journal of Auditing
DOIs
Publication statusE-pub ahead of print - 5 Jun 2020

Keywords

  • Agency Problems
  • Audit Fees
  • Business Risk
  • Employment Protection Legislation
  • Organization Capital

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