We thank an anonymous Accounting and Finance reviewer, the discussants at the national meetings of the AAA 2007 (Chicago) (Susan Cammack, Cameron University) and AFAANZ 2007 (Gold Coast) (Michael De Martinis, Monash University) and seminar participants at the University of Otago for their useful comments and suggestions.
Agency problems and audit fees: further tests of the free cash flow hypothesis
Article first published online: 17 NOV 2009
© The Authors. Journal compilation © 2009 AFAANZ
Accounting & Finance
Volume 50, Issue 2, pages 321–350, June 2010
How to Cite
Griffin, P. A., Lont, D. H. and Sun, Y. (2010), Agency problems and audit fees: further tests of the free cash flow hypothesis. Accounting & Finance, 50: 321–350. doi: 10.1111/j.1467-629X.2009.00327.x
- Issue published online: 24 MAY 2010
- Article first published online: 17 NOV 2009
- Received 3 February 2009; accepted 11 September 2009 by Gary Munroe (Deputy Editor).
- Audit fees;
- Free cash flow hypothesis;
- Agency problems
This study finds that the agency problems of companies with high free cash flow (FCF) and low growth opportunities induce auditors of companies in the US to raise audit fees to compensate for the additional effort. We also find that high FCF companies with high growth prospects have higher audit fees. In both cases, higher debt levels moderate the increased fees, consistent with the role of debt as a monitoring mechanism. Other mechanisms to mitigate the agency costs of FCF such as dividend payout and share repurchase (not studied earlier) do not moderate the higher audit fees.