Network governance and audit pricing : evidence in Malaysia

The aim of this study was to examine the relationship between network governance represented by senior government officers of the audit committee (SGOAC) and audit fee. Knowledge distribution, economic returns, effective enforcement and compliance with environmental regulations can be acquired based on the social network theory. Hence, lower audit fees may be charged by the auditors to the company with the
presence of a higher SGOAC as the information and knowledge gathered are based on their good network government connection. Analyses were conducted using data from 690 listed companies in the Bursa Malaysia in 2014. The Ordinary Least Square (OLS) regression method was applied to estimate the relationships between SGOAC and audit fee. The result shows that SGOAC has significant negative relationships with audit fee. Further analyses of the Big 4 auditor also show that lower audit fee charged in the number of SGOAC. It shows that it is not because of lower audit quality that resulted in the negative relationship between the SGOAC and audit fee. The evidence suggests that lower audit fees were charged by the auditor due to network governance, thus, network governance has a good impact on the company. Hence, the results provide initial evidence on the relationship between SGOAC and audit fees in business prospects in Malaysia.