The impact of managerial ownership on audit fees: Evidence from Portugal and Spain

Figures & data

Table 1. Sample selection criteria during the years 2010–2021

Sample selection	Number of firm years
	Portugal	Spain	Total
Non-financial firms listed	598	1.333	1.931
(-) Football club companies	(45)	-	(45)
(-) Firms with missing data	(141)	(393)	(534)
Number of firm-year observations in the final sample	412	940	1.352

Table 2. Summary of descriptive statistics

	Mean	Median	Min.	Max.	Std. deviation
Panel A—Portugal: Number of observations: 412
Audit_Fee	5.606	5.672	1.593	9.032	1.025
MANAG_OWN	0.055	0.003	0.000	0.810	0.962
Aud_Risk	0.054	0.008	0.000	0.714	0.809
FCF	0.032	0.031	−2.997	1.544	0.937
B_Size	8.720	9.000	2.000	24.000	3.913
Big4	0.732	1.000	0.000	1.000	0.449
ROA	2.612	2.207	−56.188	56.412	3.961
Leverage	0.482	0.477	0.001	2.604	0.328
Size	19.103	18.989	11.918	23.598	2.346
Panel B—Spain: Number of observations: 940
Audit_Fee	5.903	5.633	1.386	11.002	1.823
MANAG_OWN	0.078	0.004	0.000	0.857	0.897
Aud_Risk	0.183	0.159	0.000	0.701	0.622
FCF	0.080	0.067	−1.086	8.225	1.113
B_Size	12.875	13.000	4.000	32.000	4.605
Big4	0.817	1.000	0.000	1.000	0.392
ROA	3.471	3.055	−58.025	91.200	5.547
Leverage	0.592	0.601	0.003	3.789	0.302
Size	21.103	20.801	16.015	25.937	2.439

Audit_Fee represents the natural log of audit fees paid by the firm for audit services during the year; MANAG_OWN is the percentage of shares owned by the manager; Aud_Risk is the sum of inventories and accounts receivables divided by total assets; FCF is the ratio between the operating cash flows and the total assets; B_Size is the number of members of the board; Big4 dummy variable which takes a value 1 if firm is audited by a Big 4 audit firm and 0 otherwise; ROA is the net income deflated by total assets; Leverage represents the ratio between the book value of all liabilities and the total assets; Size represents the firm’s size.

Table 3. Pearson correlation coefficients matrix

	Audit_Fee	MANAG_OWN	Aud_Risk	FCF	B_size	ROA	Leverage	Size
Audit_Fee	1.00
MANAG_OWN	−0.09	1.00
Aud_Risk	−0.11	−0.41	1.00
FCF	0.14	0.22	−0.06	1.00
B_Size	0.21	0.08	0.03	0.11	1.00
ROA	0.17	0.45	−0.09	0.17	0.21	1.00
Leverage	0.21	−0.12	0.02	−0.08	−0.07	−0.32	1.00
Size	0.43	0.23	−0.11	−0.17	0.21	0.26	−0.07	1.00

Audit_Fee represents the natural log of audit fees paid by the firm for audit services during the year; MANAG_OWN is the percentage of shares owned by the manager; Aud_Risk is the sum of inventories and accounts receivables divided by total assets; FCF is the ratio between the operating cash flows and the total assets; B_Size is the number of members of the board; ROA is the net income deflated by total assets; Leverage represents the ratio between the book value of all liabilities and the total assets; Size represents the firm’s size.

Table 4. Variation inflation factors (VIF)

Varaible	VIF
Audit_Fee	1.45
MANAG_OWN	1.91
Aud_Risk	1.01
FCF	1.03
B_Size	1.92
Big4	1.33
ROA	2.01
Leverage	1.81
Size	1.31

Audit_Fee represents the natural log of audit fees paid by the firm for audit services during the year; MANAG_OWN is the percentage of shares owned by the manager; Aud_Risk is the sum of inventories and accounts receivables divided by total assets; FCF is the ratio between the operating cash flows and the total assets; B_Size is the number of members of the board; Big4 dummy variable which takes a value 1 if firm is audited by a Big 4 audit firm and 0 otherwise; ROA is the net income deflated by total assets; Leverage represents the ratio between the book value of all liabilities and the total assets; Size represents the firm’s size.

Table 5. Linear regression results (With MANAG_OWN)

	Portugal		Spain		Total sample
Dependent variable	Audit Fee		Audit Fee		Audit Fee
Independent variables	Coefficient	t-values	Coefficient	t-values	Coefficient	t-values
Constant	0.017	0.073	−0.083	−0.103	0.077	0.506
MANAG_OWN	−0.229	−2.437**	−0.276	−3.211***	−0.372	−3.723***
Aud_Risk	0.255	1.104	0.288	2.390**	0.401	3.002**
FCF	0.122	1.720	0.135	1.989	0.166	1.787
B_Size	0.152	2.566***	0.223	2.904***	0.352	3.055***
Big4	0.013	1.718*	0.370	2.301**	0.501	4.209***
ROA	0.201	0.910	0.055	1.167*	0.099	0.799
Leverage	0.341	2.037**	0.587	4.553***	0.434	4.088***
Size	0.437	3.108***	0.599	4.721***	0.539	3.988***
Year	Yes		Yes		Yes
Firm	Yes		Yes		Yes
Observations	412		940		1.352
Adjusted R^2F-statistic	29.88%26.876***		37.98%32.604***		41.07%44.505***

Audit_Fee represents the natural log of audit fees paid by the firm for audit services during the year; MANAG_OWN is the percentage of shares owned by the manager; Aud_Risk is the sum of inventories and accounts receivables divided by total assets; FCF is the ratio between the operating cash flows and the total assets; B_Size is the number of members of the board; Big4 dummy variable which takes a value 1 if firm is audited by a Big 4 audit firm and 0 otherwise; ROA is the net income deflated by total assets; Leverage represents the ratio between the book value of all liabilities and the total assets; Size represents the firm's size.

*** Significant at the 1-percent level; ** Significant at the 5-percent level; * Significant at the 10-percent level.

Table 6. Curvilinear quadratic regression results (With MANAG_OWN and MANAG_OWN²)

	Portugal		Spain		Total sample
Dependent variable	Audit Fee		Audit Fee		Audit Fee
Independent variables	Coefficient	t-values	Coefficient	t-values	Coefficient	t-values
Constant	0.200	1.089	0.155	0.877	0.987	0.466
MANAG_OWN	−0.171	−2.055**	−0.312	−2.437**	−0.419	−3.158***
MANAG_OWN^2	0.004	0.489	0.018	0.802	0.023	1.209
Aud_Risk	0.188	0.502	0.303	2.233**	0.347	2.343**
FCF	0.167	0.496	0.201	0.667	0.198	0.609
B_Size	0.287	2.987***	0.367	3.102***	0.355	3.098***
Big4	0.587	3.763**	0.315	2.407**	0.109	4.098***
ROA	0.188	0.663	0.465	2.433**	0.299	1.969**
Leverage	0.591	4.176***	0.565	3.830***	0.355	4.391***
Size	0.499	3.985***	0.501	4.087***	0.563	4.007***
Year	Yes		Yes		Yes
Firm	Yes		Yes		Yes
Observations	412		940		1.352
Adjusted R^2F-statistic	30.76% 21.556***		41.90% 26.085***		45.32%34.631***

Audit_Fee represents the natural log of audit fees paid by the firm for audit services during the year; MANAG_OWN is the percentage of shares owned by the manager; MANAG_OWN² is the square of the percentage of shares owned by the manager; Aud_Risk is the sum of inventories and accounts receivables divided by total assets; FCF is the ratio between the operating cash flows and the total assets; B_Size is the number of members of the board; Big4 dummy variable which takes a value 1 if firm is audited by a Big 4 audit firm and 0 otherwise; ROA is the net income deflated by total assets; Leverage represents the ratio between the book value of all liabilities and the total assets; Size represents the firm”s size.

*** Significant at the 1-percent level; ** Significant at the 5-percent level; * Significant at the 10-percent level.

Table 7. Piecewise Regression Results (With MANAG_OWN_Low, MANAG_OWN_Medium and MANAG_OWN_High)

	Portugal		Spain		Total sample
Dependent variable	Audit Fee		Audit Fee		Audit Fee
Independent variables	Coefficient	t-values	Coefficient	t-values	Coefficient	t-values
Constant	0.045	0.089**	0.178	0.534	0.122	0.378
MANAG_OWN_Low	−0.299	−1.989**	−0.388	−2.087***	−0.403	−3.077***
MANAG_OWN_Medium	0.211	1.082	0.309	2.088**	0.344	2.907***
MANAG_OWN_High	−0.388	−2.899***	−0.491	−2.544***	−0.400	−2.998***
Aud_Risk	0.109	1.463	0.301	2.909**	0.289	2.177**
FCF	0.122	1.309	0.204	1.254	0.178	1.408
B_Size	0.235	2.878***	0.308	2.356***	0.288	2.768***
Big4	0.299	2.099**	0.289	2.078**	0.416	4.798***
ROA	0.099	0.703	0.101	1.998*	0.104	0.698
Leverage	0.409	3.712***	0.489	3.807***	0.413	4.809***
Size	0.411	3.810***	0.459	3.879***	0.409	3.998***
Year	Yes		Yes		Yes
Firm	Yes		Yes		Yes
Observations	412		940		1.352
Adjusted R^2F-statistic	32.89% 30.718***		43.97% 33.917***		53.15%37.387***

Audit_Fee represents the natural log of audit fees paid by the firm for audit services during the year; MANAG_OWN_Low is MANAG_OWN if 0.00 < MANAG_OWN < 0.05, and 0.05 if MANAG_OWN ≥ 0.05; MANAG_OWN_Medium is MANAG_OWN—0.05 if 0.05 < MANAG_OWN < 0.25, 0.00 if MANAG_OWN ≤ 0.05, and 0.20 if MANAG_OWN ≥ 0.05; MANAG_OWN_High is MANAG_OWN—0.25 if 0.25 < MANAG_OWN < 1.00, and 0.00 if MANAG_OWN ≤ 0.25; Aud_Risk is the sum of inventories and accounts receivables divided by total assets; FCF is the ratio between the operating cash flows and the total assets; B_Size is the number of members of the board; Big4 dummy variable which takes a value 1 if firm is audited by a Big 4 audit firm and 0 otherwise; ROA is the net income deflated by total assets; Leverage represents the ratio between the book value of all liabilities and the total assets; Size represents the firm’s size.

*** Significant at the 1-percent level; ** Significant at the 5-percent level; * Significant at the 10-percent level.

Table 8. Regressions results—Alterative entrenchment regions

	Portugal				Spain				Total sample
	10%-30% threshold		12%-40% threshold		10%-30% threshold		12%-40% threshold		10%-30% threshold		12%-40% threshold
Dependent variable	Audit Fee		Audit Fee		Audit Fee		Audit Fee		Audit Fee		Audit Fee
Independent variables	Coef.	t-values	Coef.	t-values	Coef.	t-values	Coef.	t-values	Coef.	t-values	Coef.	t-values
MANAG_OWN_Low	−0.167	−2.056**	−0.095	−1.986*	−0.207	−2.769**	−0.121	−1.596**	−0.201	−2.023**	−0.197	−2.169**
MANAG_OWN_Medium	0.099	1.809*	0.109	2.007*	0.126	2.318*	0.099	2.001*	0.209	2.760**	0.200	2.718**
MANAG_OWN_High	−0.136	−2.167**	−0.105	−1.809**	−0.222	−2.420**	−0.133	−1.393**	−0.217	−2.655**	−0.223	−2.420**
Control variables	Yes		Yes		Yes		Yes		Yes		Yes
Year	Yes		Yes		Yes		Yes		Yes		Yes
Firm	Yes		Yes		Yes		Yes		Yes		Yes
Observations	412		412		940		940		1.352		1.352
Adjusted R^2F-statistic	41.09% 39.676***		42.06% 47.986***		53.00%46.099***		55.07%54.643***		62.09%54.643***		69.20%79.885***

Table 9. Regression Results—Cubic specification

	Portugal		Spain		Total sample
Dependent variable	Audit Fee		Audit Fee		Audit Fee
Independent variables	Coefficient	t-values	Coefficient	t-values	Coefficient	t-values
MANAG_OWN	−0.028	−1.699*	−0.205	−1.989**	−0.311	−2.765***
MANAG_OWN^2	0.163x10^−2	0.978	0.189x10^−2	1.897*	0.202x10^−3	2.002**
MANAG_OWN^3	−0.231x10^−4	−2.012**	−0.298x10^−5	−2.176**	−0.298x10^−6	−2.563***
Control variables	Yes		Yes		Yes
Year	Yes		Yes		Yes
Firm	Yes		Yes		Yes
Observations	412		940		1.352
Adjusted R^2F-statistic	20.72% 26.053***		29.08% 30.746***		37.73%34.734***

Table 10. 2SLS regressions results

	Portugal			Spain			Total sample
Hypotheses	H1	H2	H3	H1	H2	H3	H1	H2	H3
Dependent variable	Audit Fee			Audit Fee			Audit Fee
Independent variables	Coef. (t-values)	Coef. (t-values)	Coef. (t-values)	Coef. (t-values)	Coef. (t-values)	Coef. (t-values)	Coef. (t-values)	Coef. (t-values)	Coef. (t-values)
MANAG_OWN_Predicted	−0.189 (−2.262**)	−0.152 (−2.008**)	-	−0.201 (−3.079***)	−0.289 (−2.356**)	-	−0.211 (−3.508***)	−0.298 (−3.673***)	-
MANAG_OWN^2_Predicted	-	0.098 (0.627)	-	-	0.267 (2.156**)	-	-	0.388 (2.679***)	-
MANAG_OWN_Low_Predicted	-	-	−0.201 (−1.798**)	-	-	−0.289 (−2.001**)	-	-	−0.353 (−3.001***)
MANAG_OWN_Medium_Predicted	-	-	0.179 (0.989)	-	-	0.291 (1.989**)	-	-	0.325 (2.799***)
MANAG_OWN_High_Predicted	-	-	−0.278 (−2.687***)	-	-	0.298 (3.001***)	-	-	−0.307 (−2.760**)
Control variables	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Year	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Firm	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Observations	412			940			1.352
Adjusted R^2	27.39%	26.97%	28.07%	38.44%	40.92%	41.87%	41.08%	45.06%	53.83%
F-statistic	21.098***	19.576***	24.736***	29.780***	22.908***	30.273***	37.902***	33.987***	38.098***