Institutional investors, political connection and audit quality in Malaysia

Abstract

PurposeThe purpose of this paper is to extend the audit pricing literature by examining whether institutional investors and political connection are associated with higher audit fees.Design/methodology/approachBoth descriptive and multivariate analyses are employed to address the research objectives. In addition, the authors use panel data to control for both heterocedasticity and contemporaneous correlations in each cross‐section.FindingsBased on a panel analysis of 390 Malaysian firms from 1999 to 2003, a positive relationship between institutional ownership and audit fees is found, although the economic impact is minimal. Further, the authors find that audit fees are higher for politically connected firms.Research limitations/implicationsA thorough examination on the role of political connection is much warranted to provide a better understanding on such connection influences the audit market.Originality/valueThis paper provides an alternative view on the role of political connection, and on how they influence the audit market.