This paper tests the hypothesis that the positive association between Free Cash Flow (FCF) and audit fees is stronger (weaker) for firms with low (high) levels of director equity ownership. Based on the debt monitoring hypothesis, we also test the hypothesis that the FCF/director equity ownership interaction is less (more) likely to exist for firms with high (low) levels of debt. OLS regression analyses of 157 and 140 low growth Australian firms audited by Big 6 auditors for the years 1992 and 1993 provide support for the hypotheses.
Free Cash Flow, Debt Monitoring, and Audit Pricing: Further Evidence on the Role of Director Equity Ownership
Ferdinand A. Gul, Judy S. L. Tsui; Free Cash Flow, Debt Monitoring, and Audit Pricing: Further Evidence on the Role of Director Equity Ownership. AUDITING: A Journal of Practice & Theory 1 September 2001; 20 (2): 71–84. https://doi.org/10.2308/aud.2001.20.2.71
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