5. Empirical results
5.1. Univariate analysis
Table 5 presents the results of univariate analysis of the audit fees and firm characteristics of the sample
companies and the characteristics of their audit firms. This analysis compares companies included in the
SSE Corporate Governance Sector (Governance Sector hereafter) with other firms (Non-governance Sector
hereafter). It can be seen from Panel A that the mean difference in audit fees between the two groups of firms
is highly significant (p-value = 0) in 2007 and 2008, thus providing preliminary evidence that audit fees are
correlated with inclusion in the Governance Sector. However, it is possible that the difference is caused by factors
other than corporate governance (e.g., the scale of total assets). Panel B presents the means of the firm
characteristics of companies in the two groups. We can see that there are significant differences (1% level,
two-tailed) between the groups in terms of firm size, listing on the Hong Kong Stock Exchange, loss occurrence
and number of subsidiaries in both 2007 and 2008. Furthermore, the difference between the Governance
and Non-governance Sectors is positive for all characteristics other than loss occurrence. The results also show
that there is no statistically significant difference between the two groups in terms of corporate growth, the
ratio of accounts receivable to total assets, the ratio of inventory to total assets and the number of industries
in which a firm is involved. Panel C presents the means of the audit firm characteristics, from which it can be
seen that the between-group difference is highly statistically significant. We can also see that the proportion of
companies audited by one of the Big 4 is larger in the Governance than Non-governance Sector. We believe
that these results show that companies audited by a Big 4 audit firm are much more likely to be included in the
SSE Corporate Governance Sector. Our inference is as follows. If it is true that the Big 4 provide superior
audit quality and can boost the corporate governance level of an auditee, then the results in Panel C show
that related parties recognize companies with good corporate governance, although the SSE Corporate Governance
Sector is appraised and promulgated on the basis of voluntary applications.
5. Empirical results
5.1. Univariate analysis
Table 5 presents the results of univariate analysis of the audit fees and firm characteristics of the sample
companies and the characteristics of their audit firms. This analysis compares companies included in the
SSE Corporate Governance Sector (Governance Sector hereafter) with other firms (Non-governance Sector
hereafter). It can be seen from Panel A that the mean difference in audit fees between the two groups of firms
is highly significant (p-value = 0) in 2007 and 2008, thus providing preliminary evidence that audit fees are
correlated with inclusion in the Governance Sector. However, it is possible that the difference is caused by factors
other than corporate governance (e.g., the scale of total assets). Panel B presents the means of the firm
characteristics of companies in the two groups. We can see that there are significant differences (1% level,
two-tailed) between the groups in terms of firm size, listing on the Hong Kong Stock Exchange, loss occurrence
and number of subsidiaries in both 2007 and 2008. Furthermore, the difference between the Governance
and Non-governance Sectors is positive for all characteristics other than loss occurrence. The results also show
that there is no statistically significant difference between the two groups in terms of corporate growth, the
ratio of accounts receivable to total assets, the ratio of inventory to total assets and the number of industries
in which a firm is involved. Panel C presents the means of the audit firm characteristics, from which it can be
seen that the between-group difference is highly statistically significant. We can also see that the proportion of
companies audited by one of the Big 4 is larger in the Governance than Non-governance Sector. We believe
that these results show that companies audited by a Big 4 audit firm are much more likely to be included in the
SSE Corporate Governance Sector. Our inference is as follows. If it is true that the Big 4 provide superior
audit quality and can boost the corporate governance level of an auditee, then the results in Panel C show
that related parties recognize companies with good corporate governance, although the SSE Corporate Governance
Sector is appraised and promulgated on the basis of voluntary applications.
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