Agency costs and product market competition: The case of audit pricing in Greece

P. Weetman, S. Leventis

Research output: Contribution to journalArticlepeer-review

Abstract

Jensen and Meckling (1976) argue that agency costs are not dependent on product market competition. However, elsewhere in the economics literature, theoretical analysis and empirical research have indicated that product market competition reduces agency costs by reducing the marginal cost of eliciting effort from agents. We investigate the relationship between product market competition and audit fee, as an example of agency cost. Taking advantage of a proprietary data set for Greek audit firms, we find that the audit fee and audit hours are inversely associated with client firm product market competition. We conclude that audit effort, as an agency cost, is reduced where competitive forces reduce the need for shareholders to bear the costs of monitoring agents.
Original languageEnglish
Pages (from-to)112-119
JournalBritish Accounting Review
Volume43
Issue number2
DOIs
Publication statusPublished - Jun 2011

Keywords

  • agency cost
  • audit fee
  • audit hours
  • audit pricing
  • market competition

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