Pyramidal Ownership Structure and Firms’ Audit Fees

Abstract

ABSTRACT Using the sample of listed firms in China from 2004 to 2014, this paper investigates the impact of pyramidal ownership structure on firms’ audit fees. The results show that (1) generally, the greater the number of pyramidal layers, the more audit fees the firm pays; (2) compared with non-state-owned firms, this relationship is weaker in state-owned firms. Additional tests show that the number of pyramidal layers has a stronger impact on audit fees in firms whose voting rights and cash flow rights are separated. However, CEO duality and management ownership do not affect this relationship. Moreover, in state-owned firms, the positive relationship between the number of pyramidal layers and audit fees only exists in those firms whose ultimate controllers’ administrative level is lower. This paper expands the studies on the consequences of pyramidal ownership structure and introduces shareholding structure into the research on determinants of audit fees.