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Parent-Subsidiary Investment Layers and Audit Fees
journal contribution
posted on 2017-01-01, 00:00 authored by Ferdinand GulFerdinand Gul, Audrey Wen-hsin Hsu, Sophia Hsin-Tsai LiuThis 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.
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Journal
JAAF: Journal of Accounting Auditing and FinanceVolume
33Issue
4Pagination
555 - 579Publisher
SageLocation
London, Eng.Publisher DOI
ISSN
0148-558XeISSN
2160-4061Language
EnglishPublication classification
C1 Refereed article in a scholarly journalUsage metrics
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