An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Jim Wang
The Hong Kong Polytechnic University

Abstract: It is an empirical issue whether entrenchment governance provisions adopted by firms entrench the management or these provisions are used to attract and retain good managers. This study uses the audit fee model to examine the association between audit fees and management entrenchment (proxied by Bebchuk et al. 2005 entrenchment index). The results show that audit fees are significantly positively correlated with Bebchuk et al. (2005) entrenchment index controlling for other factors. Further results show that the positive relation between audit fees and the entrenchment index exists only in firm with low growth opportunity and high free cash flow (i.e. Jensen agency problem firms), suggesting the corporate governance provisions entrench management and bring in negative effects.

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