Political control and audit fees: an empirical analysis of local state-owned enterprises in England

IMPACT

We need to know more about the financial accountability of corporatized public services. In this article, the authors analyse the audit fees of a large sample of English local SOEs from 2009–2017, assessing the impact of board composition and ownership structure on those fees. SOEs with more politicians on their boards of directors had higher audit costs and this was especially so for majority-owned SOEs. This article highlights the need for policy-makers to evaluate the consistency of auditing arrangements for the hybrid arm’s-length organizations delivering public services.

ABSTRACT

This article investigates the relationship between political control and audit fees for local state-owned enterprises (SOEs) in England—hybrid public service organizations not subject to public sector audit. Panel regression techniques are used to analyse secondary data on 405 SOEs for 2009–2017 where major local authorities held an interest. Statistical results suggest greater political representation on boards of directors of local SOEs is associated with higher audit fees and positive relationship between political control and audit fees is stronger for majority public ownership.

KEYWORDS:

• Agency theory
• audit fees
• corporatization
• England
• local government
• publicness
• quantitative analysis
• SOEs