The effect of external audits : evidence from voluntary audits of hedge funds

Dichu BAO, Jong-Hag CHOI, Byoung Uk KANG, Woo-Jong LEE

Research output: Journal PublicationsJournal Article (refereed)peer-review

1 Citation (Scopus)

Abstract

Using the setting of hedge funds, we document two important merits of external audits. We find that incentive fee rates (i.e., performance-based compensation to fund managers) are higher for audited funds than for unaudited funds. In contrast, management fee rates (i.e., fund-size-based compensation to fund managers) do not differ depending on audit status. We also find some evidence that audited funds attract more capital inflows from investors than unaudited funds do after funds report high performance. Our findings indicate that hedge fund investors appreciate the value of external audits.

Original languageEnglish
Pages (from-to)23-43
Number of pages21
JournalAccounting Horizons
Volume35
Issue number4
Early online date23 Feb 2021
DOIs
Publication statusPublished - Dec 2021
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2021, American Accounting Association. All rights reserved.

Keywords

  • Fund capital flows
  • Hedge funds
  • Incentive and management fees
  • Voluntary audit

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