A Study on Audit Fees, Audit Hours, and Corporate Governance Practices

A Study on Audit Fees, Audit Hours, and Corporate Governance Practices

This study investigated the effect of corporate governance of the firms included in the Korea Composite Stock Price Index (KOSPI) on audit fees and audit hours. Prior studies suggested a positive association between audit risks and audit fees and hours. However, there was no noteworthy research on the relationship between audit risks and audit fees and hours for Korean firms. Using 3,825 firm-year observations collected over the period of 2002 to 2009 from Korean stock market, this study offered empirical evidence on the link between corporate governance and audit efforts. The empirical results revealed that the KOSPI firms sound corporate governance practices had a negative effect on yearly audit fees. The study also revealed that the firms with sound corporate governance practices increased its yearly audit hours. In addition, this paper found that corporate governance practices decreased audit fee per audit hour when the effect of firm size on corporate governance is considered in the regression. After controlling for the panel data regression problems, the negative effect of corporate governance quality on audit fee rate per audit hour is still robust.