Department of Accounting & Information Systems

University of Dhaka

Course Name: Advanced Research Methodology (6103)

Assignment-2
Research Proposal (1200 Words)

Submitted To:
Dr. Mohammad Moniruzzaman

Associate Professor
Department of Accounting & Information Systems
University of Dhaka

Submitted By:
Group Name: The Dynamic Squad

Section: B

Batch : MBA 24th

Date of Submission: 18 March, 2023

 Our Research Title
“The impact of political connection and the effectiveness of the board
of directors and ownership structure on audit fees- Evidence from
Bangladesh.”

Group Details
Group Name: The Dynamic Squad

Group Members Name ID No

Shrewsee Saha Diba 24095
Shamchhun Nahar Shikha 24023
Shakila Aktar 24061
Tuli Modak 24064
Sunjida Akter 24122

‘
Summary

The purpose of this study is to determine the influence of ownership structure and the efficacy
of the board of directors on audit fee determination and also to show the political implications
on audit fees. The sample for this quantitative study is 120 yearly reports. Secondary data will
be collected from the textile and pharmaceutical & chemical industry for the year 2019 to 2021.
The revised corporate governance code of 2018 will produce better outcomes. The profiles of
the board of directors will be used to assess political connections and impact. To conduct our
study, we will use a variety of statistical tools. This is Bangladesh's first contribution in this area.
The study's findings will help Bangladeshi decision-makers learn about the key factors
influencing audit fees, as well as become aware of unethical political practices and take
appropriate action if major political ties exist.

Background of the study

To govern business, we need some laws, ordinances, and customs. Board composition,
ownership structure, audit committee acts as key mechanisms of corporate governance so that a
true and fair representation of financial statements can be ensured using a systematic and
unbiased audit process (Arshad Hasan, 2022).

Auditing is an inspection process to check the accuracy of financial statements but audit quality
refers to the degree of compliance with the relevant standards (Khaled Isam, 2020). Higher audit
quality increases the reliability of financial information (Mark DeFond, 2014). As a relationship
exists always between audit quality and audit fees (Rani Hoitash, 2007), so to maintain audit
quality the audit fee determination gets great importance. Due to monitoring management
practices regarding financial reporting, the board characteristics and their roles are expected to
affect audit fees (Mohammad Ziad SHAKHATREH, 2021). The study will be developed
focusing on whether any relationship exists between audit fee determinants & characteristics of
corporate governance in developing countries context. The involvement of the board motivates
us to represent the real scenario of the relationship between audit fee determinants and board
characteristics by extracting textile and chemical & pharmaceutical industry information in
emerging economies like Bangladesh. Because of holding around 61% to 65% of the total market
share (Md. Mehedi Hasan, 2017), they secure the leading position in the manufacturing industry.
They are prioritized as a lucrative sector for investment to potential investors. That’s why the
main purpose of the study is overlooked using these industries as samples.

Research Objectives
➢ To investigate the potential impacts of board characteristics and ownership structure in
determining audit fees in the Textile and Pharmaceuticals & Chemical Industry of
Bangladesh.
➢ To investigate the relationship between the political connection of the board of directors
and audit fees in Bangladesh's Textile and Pharmaceuticals & Chemical Industries.
Research Questions
➢ What are the influential factors of board characteristics and ownership structure
determining audit fees in the Textile and Pharmaceuticals & Chemical Industries?
➢ Is there any political connection among the companies that influence the determination
of audit fees?
Literature Review & Hypothesis Development
The determinants of audit fees are widely used in research area using different methods &
variables and provide mixed results. The existing literature shows a positive and significant
impact of client size, leverage and firm ranking on audit fees and a negative and significant
impact of the proportion of independent directors on audit fees (Hossain & Sobhan, 2014).

Kikhia (2014) found no significant relationship both of audit committee expertise and the
number of audit committee meetings with audit fees, but audit committee independence holds a
significant positive association with the level of audit fees. Soyemi and Olowookere (2013)
provided empirical evidence of client attributes that significantly explain variations in the
number of external audit fees charged by bank auditors. Bank size is the key determinant of
audit fees in the banking industry, though a significant negative relationship was observed
between audit fees and the number of branches of the clients (Soyemi and Olowookere, 2013).

According to Mohammad Hassan & Naser (2013), audit fee was positively related to firm size,
reporting lag & complexity and negatively related to the audit committee’s independence, but
audit fees were not significantly influenced by profitability, risk, status of the audit firms.
 In determining audit fees, the effect of the overall characteristics of corporate
governance was already shown in many literatures but the effect of the role of the board of
directors and ownership structure in an emerging economy is relatively unclear in the previous
literature. Therefore, we are trying to fill up the gap in this sector through this study. Based on
the revised corporate governance code 2018, the board of directors’ characteristics and
ownership structure may affect the level of audit fees. These possibilities of changes lead us to
go for further investigation. For the first time, we have tried to check whether any political
connection significantly affects the level of audit fees as the political connection is prevalent in
Bangladesh.

Based on the previous research and arguments the following hypothesis has been
developed.

H0: There is no significant impact of the role of the board of directors & ownership structure.

H1: There is a positive relationship between the audit committee and audit fees.

H2: There is a positive relationship between board size and audit fees.

H3: There is a positive relationship exists between the independent directors and audit fees.

H4: There is a negative relationship between leadership duality and audit fees.

H5: There is a positive association between the meeting frequency of the board and audit fees.

H6: There is a significant association between political connections and audit fees.

H7: Institutional ownership significantly affects audit fees.

H8: Foreign ownership is positively related to audit fees

H9: There is a negative association between managerial ownership and audit fees.
 Research Methodology
➢ Sample size:

For the purpose of our study, 20 pharmaceutical and 20 textile companies listed in Dhaka Stock
Exchange (DSE) in Bangladesh for the year 2019-2021 will be taken as samples.

➢ Data collection source:

Relevant data will be collected from secondary sources such as the annual financial report of the
respective companies and the Dhaka Stock Exchange (DSE) website.

➢ Data analysis tools and techniques:

Along with some descriptive statistics, other statistical tools like T-test, correlation, coefficient
of variance and multiple regression analysis will be used using SPSS SOFTWARE to analyze
the objectives of our study.

➢ Research model:

To evaluate the board characteristics & ownership structure’s effect on the audit fees we will use
a pooled cross-sectional analysis. Using the multivariate regression model, the following
regression equation has been developed: (Mohammad Ziad SHAKHATREH, 2021)

LAF = α+ ß1CSIZE+ ß2LEV+ ß3FP+ ß4FAGE+ ß5BIG4+ ß6ACE+ ß7BSIZE+ ß8BIND+

ß9LDUALITY+ ß10MTING+ ß11POL+ ß12OWIN+ ß13OWF+ ß14OWS+ ε

Dependent Variable:

LAF = Natural logarithm of total audit fees.

Independent Variables:

1) Audit committee existence

2) The board size
3) Independent directors
4) Leadership duality
5) Number of meetings
6) Political connection
 7) Institutional ownership
8) Foreign ownership
9) Managerial ownership.

Control Variables:

Clint Size, Leverage, Firm performance, Firm age, Audit firm

Future Contribution

Using the outcome of the research potential investors in Bangladesh are informed about the
influential factors determining audit fees. Being aware policymakers take necessary steps against
unethical political practices if significant political connections would be found.

Time Scale

Stages of research Week Week Week Week Week Week Week Week
1 2 3 4 5 6 7 8
Conduct Literature
Review
Research
Methodology Plan

Data collection From

Secondary Sources

Analysis &
Interpretation of Data

Findings &
Recommendations

Submit Final Report

 References
Hossain, M.N. and Sobhan, R., (2019). Determinants of audit fees: Evidence from
pharmaceutical and chemical industry of Bangladesh. International Journal of Trend in
Scientific Research and Development, 4(1), pp.815-821.
Kikhia, H.Y., (2014). Board characteristics, audit committee characteristics, and audit fees:
Evidence from Jordan. International Business Research, 7(12), p.98.
Soyemi, K.A. and Olowookere, J.K., (2013). Determinants of external audit fees: Evidence
from the banking sector in Nigeria. Research journal of finance and accounting, 4(15), pp.50-
58.
Hassan, Y. and Naser, K., (2013). Determinants of audit fees: Evidence from an emerging
economy.
El-Gammal, W., (2012). Determinants of audit fees: Evidence from Lebanon. International
Business Research, 5(11), p.136.
Baldacchino, P.J., Attard, M. and Cassar, F., (2014). Factors influencing external audit fees in
Malta.
Hossain MN, Sobhan R. Determinants of audit fees: Evidence from pharmaceutical and chemical
industry of Bangladesh. International Journal of Trend in Scientific Research and Development.
2019;4(1):815-21.
Khaled Isam, A.-Q. Z. S., 2020. Audit Quality: A Literature Overview and Research Synthesis.
Journal of Business and Management, 2 February, 22(2), p. 11.
Mark DeFond, J. Z., 2014. A review of archival auditing research. Journal of Accounting and
Economics, 2 September, 275-326(58), p. 52.
Md. Mehedi Hasan, L. L. K. R., 2017. Optimal design of hybrid microgrids for the readymade
garments industry of Bangladesh: A case study. Bangladesh, ResearchGate, p. 7.
Mohammad Ziad SHAKHATREH, S. A. A., 2021. Determinants of Audit Fees and the Role of
the Board of Directors and Ownership Structure: Evidence from Jordan. Journal of Asian
Finance, Economics and Business, 15 April, 8(5), p. 11.
Rani Hoitash, A. M. C. A. B., 2007. Auditor fees and audit quality. Managerial Auditing
Journal, 18 September, 22(8), p. 25.
Arshad Hasan, D. A. K. H., 2022. Corporate governance and financial reporting quality: a
comparative study. Corporate Governance,, 27 July, 22(6), pp. pp. 1308-1326.