Exploring the relationship between non-audit fees and investment decision: a comprehensive analysis

Abstract

This research investigates the relationship between non-audit fees and the performance of large and very large private companies in Belgium, with performance serving as a proxy for investment decisions. Utilizing quantitative data from Belfirst (2016-2021) that encompasses 915 companies, this study reveals several significant associations. A notable positive correlation between non-audit fees and audit fees interpreted as a component of audit quality was identified, suggesting that firms with higher audit fees may adjust non-audit service pricing. Industry-specific differences were highlighted, emphasizing the need to account for various sectors when analyzing the effects of audit fees. A central discovery is the negative association between audit fees and company performance, as supported by Pearson's product-moment correlation. my mediation analysis uncovers a significant role for audit fees in the nexus between non-audit fees and company performance, with the Average Causal Mediation Effect (ACME) indicating a substantial negative indirect effect of non-audit fees on company performance when mediated by audit fees. Moreover, companies audited by the "Big Four" generally exhibited better performance scores. This study, while comprehensive, acknowledges limitations due to the complexities inherent in audit quality and company performance proxies and recommends further research to explore additional dimensions of audit quality and to replicate the study in different contexts. Ultimately, this thesis has broader implications beyond academia, serving as a practical guide for corporations and audit firms navigating intricate financial landscapes and emphasizing the critical balance between fees and company profitability.