The Interactive Effect of Financing Constraints and Management`s Over-Confidence on Audit Fees

Abstract

Objectives: Agency problems arise as a result of the conflict of interests between managers and shareholders. Auditing is considered as an effective way to limit the power of managers in contractual relationships. The basis of this paper is examining the role of funding constraints in changing the interactive effect between managers’ over-confidence and auditing fees. Method: The data of the companies, listed in the Tehran Stock Exchange for the period 2006 to 2016, have been extracted and the combined data regression model has been used to test the research hypotheses. Results: The results indicate that excessive self-confidence and financial constraints lead to changes in audit fees. Also, the results indicate that financing constraints have a significant effect on the joint interaction of management`s over-confidence and the audit fees.

Keywords

• over-confidence
• auditing fees
• financing constraints