Why do companies purchase timely quarterly reviews?

The use of internal audit by Australian companies

“…We therefore include a number of control variables which have been shown to affect agency costs and which have not been addressed in our hypotheses. Agency costs are expected to be higher when senior management's shareholdings are proportionately lower because this results in less alignment of shareholder and management interests (Ettredge et al, 1994;Menon and Williams, 1994). They are also expected to be higher when there is a smaller concentration of large shareholders as these shareholders can more directly monitor the activities of management (Collier and Gregory, 1999).…”

“…They are also expected to be higher when there is a smaller concentration of large shareholders as these shareholders can more directly monitor the activities of management (Collier and Gregory, 1999). A higher level of debt increases agency costs (Watts and Zimmerman, 1986;Chow, 1982;Jensen and Meckling, 1976) because of the incentives for managers to transfer wealth from debtholders to shareholders (Klein, 2002;Ettredge et al, 1994;Bradbury, 1990). Further, a high level of growth opportunities has been argued to increase agency costs of debt because wealth transfers between shareholders and debtholders are more difficult when firms have a greater proportion of assets-in-place (Collier, 1993;Anderson et al, 1993).…”

Value and Costs of Auditor’s Assurance: Evidence from the Review of Quarterly Financial Statements

“…Similar to Ettredge et al (1994), we expect that as company size increases, the incremental effect of a review on audit fees decrease. As suggested by PriceWaterhouseCoopers (1999) the relative cost may be higher for smaller companies because of "(1) the relatively lower cost of auditing smaller entities and, therefore, the relatively higher impact of adding three visits to the company during the year, and (2) the less structure in such entities resulting in additional need to follow up on inquiries and analytical procedures."…”

“…More segments not only increase the complexity of the quarterly financial statements but impose additional costs associated with making enquiries and discussions with persons responsible for financial and accounting matters at different locations. In addition, foreign operations could result in higher review costs in countries where the auditor does not have an affiliated firm or where quarterly financial statements are not required (Ettredge et al 1994). We hypothesize that…”

“…Based on the audit fees literature, Ettredge et al (1994) and the professional literature, we identify the following attributes that we expect to be associated with the incremental price of a review: the company's size and its degree of complexity as measured by the number and location of its segments.…”