UNIVERSITY OF EDUCATION

Relationship between Corporate Governance and Audit Fee:

Evidence from Companies Listed On the Pakistan Stock Exchange

Research Proposal
Hamza sajjad 754
5/12/2019

This study was conducted to analyze the relationship between corporate governance and audit fee. The
study was conducted after great literature review and the gap was observed in the study.
Introduction:
Pakistan important practical and theoretical implications for has determinant of
the audit. In order to preserve the soundness of financial information available to
the public and serve the responsibility of business, auditing and supervisory
bodies have become one of the collective corporate governance tools.

Countries all over the world now the attention, to ensure accountability, fairness,
transparency and reliability of the corporate sector, but they need to promote
well managed corporate governance policies, to save the interests of the
stakeholders and shareholders. Audit remuneration can sometimes be a problem
when the abnormal rate for a particular customer is billed. In some cases, a better
judgment, a customer can pay a fee revision rate higher than they should be paid.

This research will investigate the factors that make the rate of fees for audit firms.
This research will investigate all companies that good corporate governance.
Corporate governance plays an important role the climate for investment in the
economy in the provision. The best corporate governance in the economic
climate is an attractive investment for investors. Profession in this case makes the
auditor an audit firm also has an important role to support good corporate
governance (GCG). The listener can support the realization of a good deal.

Corporate Governance and its Background in Pakistan:

Well managed corporate governance always contributes to sustainable economic
development by increasing efficiency of firms and enhancing the approach to
capital from investors. Excellent corporate governance system serves many public
policy objectives. It minimizes the chances of financial problems, transaction cost,
and cost of capital and also contributes in the development of capital market.
Corporate Governance tells the relationship between different stakeholders such
as Board of Directors, management, shareholders, and others.
It creates interest in the area of corporate sector for research. This code is the
first step for Corporate Governance reform in Pakistan. This code is issued for
strengthens and enforcement of the regulations .It compose of recommendations
and reforms of Board of Directors in order to make them accountable to
shareholders and disclose all audited financial record for shareholders by listed
companies.

Literature Review:
A study was made in Malaysia which focuses to observe association among audit
fee and corporate governance. This study had contained the period before and
after the implementation to Malaysian Code of Conduct. Total 379 firm’s data had
been collected from the period of 1999-2002. Consequences display the
significant and positive association among corporate governance & audit fee. But
it also seen that after 2001, this relationship is weak because of MCCG control
and risk.

Masdiah Abdul Hamid and Azizah Abdullah investigate the association among
audit remuneration, board & audit committee. They collected data of 191 GLCs
and NLGCs from 2006-2008. Size, duality roles, board independent and audit
committee’s independence investigated and the period of auditor also keep in
view checking the impact of audit fee on auditor’s importance. Results show that
audit fee is absolutely and meaningfully relate with size of the board but no
significantly relate with measures for GLCs. But for NLGCs, Board individuality
absolutely and knowingly related audit fee and variable is negatively related.
Audit tenure show no significant relationship for GLCs & NGLCs. Results also
present high fees for GLCs and Low fee for NLGCs.

A study was conducted in China of the companies which are listed in Shanghai
Stock Exchange to analyze the association among audit charges and corporate
governance. Full sample results shows negative connection among corporate
governance and audit fee and subsample analysis represents influence of
corporate governance on audit fees influenced corporate growth. Sample
companies which grow moderately has negative relationship and in fast or
negative growth companies result mixed or insignificant relationship.

Another investigation was done to check effectiveness of audit committee a proxy

of governance quality on audit fees and non-audit services. When they control the
characteristics of board of directors, they find the positive association among
audit fee and effectiveness of audit committee for large clients.

Gap Identification:
The literature is very rich and knowledgeable but it also seen that the analysis on
the audit fee and corporate governance is not clear in previous studies. Many
proxies which are taken such as Board size, Non-executive members in BOD
create problem of co linearity in results and these proxies are omitted from
results.

Research Method:
The objective of analysis is on the factors that influence audit remuneration in
well managed companies in Pakistan. The data will ensure that companies that
will listed in Pakistan Stock Exchange. Quantitative data will used and Sources for
data, which will used in this study were collected from secondary source of data. ,
This source of data will be from 3rd party such as the Internet, the Exchange
website Pakistan or audited financial statements of companies over access to
Pakistan market and other sources such as the fixed site.

Materials and Methods

The reason of study will to examine the relationship between audit fee and
Corporate Governance. Data will collect from PSE. Convenience sampling
techniques will used to select sample from the whole of the population. We will
select 25 companies from the Pakistan stock exchange. Data will collected from
financial information of the companies listed in PSE from year 2011 to 2015
because of availability of the amount paid to auditor or auditor’s remuneration. In
this study panel data regression will used. Panel data analyzing the individual firm
and also reduce the risk of co linearity because the panel data covers the
heterogeneity of cross sectional

Model & Variables:

Thus keeping in view the operational definitions of the variables that we will use
in the study and the study of hypothesis, the new research model is produced as
given below:

Ln fee = B0 + B1 Big4 + B2 Ln Assets + B3 Recint + B4 Invint

+B5Auditopinion + e (1)

This explain variables Audit Fee. It is natural logarithm of Audit Fee.

The Independent variable used in this Model is in Asset, invent, recint, audit
opinion, and Big4.

LNfee Natural logarithm of audit fee

B0 Constant
Big4 Top4 audit firms in Pakistan=1,Not Top4=0
LN Assets Natural log of Assets
Recint Account receivable / Total Assets
Invint Inventory / Total Assets
Auditopinion Auditor report about company financial reports,
positive=1,Negative=1
E(1) Error