Institutional cross-ownership and abnormal audit fees: evidence from China

Purpose In recent years, a wealth of research has been conducted on the strategic consequences of institutional cross-ownership (ICO) for companies. However, there has been little research on the impact of ICO on audit practices. Focusing on audit fees, this paper aims to examine the relationship between ICO and abnormal audit fees. Design/methodology/approach Using data from Chinese-listed companies, the authors adopted fixed-effects regression and a series of endogeneity tests to explore the impact of ICO on abnormal audit fees. Findings This paper finds that ICO is associated with abnormal audit fees. After distinguishing the direction of abnormal audit fees, the authors find that ICO is associated with positive rather than negative abnormal audit fees. Through the mechanism test, this paper finds that ICO can lead to rent-seeking behaviour, which in turn increases abnormal audit fees. Originality/value This paper offers a novel and important perspective on the antecedents of abnormal audit fees, thereby contributing to a more comprehensive understanding of the economic consequences of ICO. Finally, the findings of this paper are instructive and relevant. Regulators should pay more attention to firms with ICO, and this paper calls for the strengthening of monitoring and supervision for possible audit collusion.