Parent-Subsidiary Investment Layers and Audit Fees

Ferdinand A. Gul; Audrey Wen-hsin Hsu; Sophia Hsin-Tsai Liu

doi:10.1177/0148558X17696763

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Parent-Subsidiary Investment Layers and Audit Fees

Journal article

Peer reviewed

Parent-Subsidiary Investment Layers and Audit Fees

Ferdinand A. Gul, Audrey Wen-hsin Hsu and Sophia Hsin-Tsai Liu

Journal of Accounting Auditing and Finance, Vol.33(4), pp.555-579

2018

DOI: https://doi.org/10.1177/0148558X17696763

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Abstract

audit fees

parent-subsidiary structure

investment layers

tax haven

related-party transactions

This study investigates whether the number of investment layers within a parent-subsidiary consolidated group is associated with a firm's audit fees. Using a unique sample of publicly traded Taiwan companies, which are required to disclose information on all of their affiliates, we measure the number of vertical layers in the parent-subsidiary relationship, from the parent company to the lowest-tiered subsidiary. Our results show a positive association between audit fees and the number of investment layers. In addition, we find that the positive association between audit fees and the number of layers becomes stronger for firms which have more investees located in tax haven countries. Our results also show that the positive association between audit fees and the number of investment layers is more pronounced as companies' engagement in related-party transactions increases. Overall, the results support the argument that auditors attach higher audit risks to firms with more investment layers and therefore charge higher audit fees.

Details

Title: Parent-Subsidiary Investment Layers and Audit Fees
Authors: Ferdinand A. Gul (Author) - National Taiwan University
Audrey Wen-hsin Hsu (Corresponding Author) - National Taiwan University
Sophia Hsin-Tsai Liu (Author) - National Taiwan University
Publication details: Journal of Accounting Auditing and Finance, Vol.33(4), pp.555-579
Publisher: Sage Publications, Inc.
DOI: 10.1177/0148558X17696763
ISSN: 2160-4061
Organisation Unit: University of the Sunshine Coast, Queensland; School of Business and Creative Industries
Language: English
Record Identifier: 99679191302621
Output Type: Journal article

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Collaboration types: Domestic collaboration; International collaboration
Web Of Science research areas: Business, Finance

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