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 language | English |
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Pages (from-to) | 23-43 |
Number of pages | 21 |
Journal | Accounting Horizons |
Volume | 35 |
Issue number | 4 |
Early online date | 23 Feb 2021 |
DOIs | |
Publication status | Published - Dec 2021 |
Externally published | Yes |
Bibliographical note
Publisher Copyright:© 2021, American Accounting Association. All rights reserved.
Keywords
- Fund capital flows
- Hedge funds
- Incentive and management fees
- Voluntary audit