eThesis - School of Business electronic theses

This thesis was conducted in order to research how corporate governance characteristics as an aggregate index affect audit fees. Corporate governance has become an important subject during the past few decades since shareholder engagement has increased and also the need to align corporate management's interests with the shareholders' ones. Corporate scandals have also created the need to improve corporate governance and the quality and amount of disclosures covering corporate governance practices. Corporate governance codes have increased rapidly and self-regulatory corporate governance has gained much ground globally. In the same time the pressures and expectations for auditors have increased and competition in the market has highlighted the need for efficient risk-adjustment strategies for auditors.

Through building an aggregate index for measuring corporate governance characteristics this thesis contributes to the holistic research field by using Finnish corporate governance code recommendations as a basis for establishing best practices for corporate governance and measuring the characteristics empirically. The empirical test was performed by utilizing correlation matrix and regression analysis for a sample data gathered from listed companies in NASDAQ OMX Helsinki during 2012. The correlation analysis found significant multicollinearity between corporate governance characteristics supporting the holistic research method and building an aggregate variable in the field of corporate governance research. However, the results from the regression analysis did not found significant association between audit fees and corporate governance aggregate variable. The lack of association may indicate concurrent effect of both risk-based perspective and demand-based perspective on audit pricing. Since auditors have different risk-adjustment forms finding statistically significant results may require more precise information on auditors' responses to changes in audit clients' corporate governance practices.