Journal article
A test of the free cash flow and debt monitoring hypotheses: Evidence from audit pricing
Journal of Accounting and Economics, Vol.24(2), pp.219-237
1997
Abstract
This study examines the association between free cash flow (FCF) and audit fees. The association is expected given Jensen's argument that managers of low growth/high FCF firms engage in non-value-maximizing activities. These activities increase auditors' assessments of inherent risk and, in turn, audit effort and fees. Jensen also argues debt mitigates the non-value-maximizing activities. Thus, the positive FCF/audit fees association is expected to be weaker for low growth firms with high debt than for similar firms with low debt. Regression results for a sample of low growth Hong Kong firms support these hypotheses.
Details
- Title
- A test of the free cash flow and debt monitoring hypotheses: Evidence from audit pricing
- Authors
- Ferdinand A Gul (Author) - City University of Hong KongJudy S L Tsui (Author) - City University of Hong Kong
- Publication details
- Journal of Accounting and Economics, Vol.24(2), pp.219-237
- Publisher
- Elsevier BV
- DOI
- 10.1016/S0165-4101(98)00006-8
- ISSN
- 1879-1980
- Organisation Unit
- School of Business and Creative Industries; University of the Sunshine Coast, Queensland
- Language
- English
- Record Identifier
- 99678893502621
- Output Type
- Journal article
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