Dominant Shareholders, Excess Control and Audit Fees in Canada

Abstract

Public firms throughout the world tend to be controlled by large shareholders who possess significant control rights in excess of their cash-flow rights (excess control). The most salient agency problem in such concentrated ownership structures is the risk of minority shareholders expropriation by the dominant shareholders. In this paper, we focus on agency costs of concentrated ownership structures while proposing a different and novel angle to study. We investigate whether the presence of the dominant shareholders and excess control increases audit fees. Using a panel of 242 S&P/TSX Canadian firms over the period 2002-2008, we document a positive association between excess control and audit fees. We also document that excess control primarily impacts on audit fees over and above the effects of ownership concentration and/or family ownership.