Does statutory auditors matter in bank-dominated corporate governance? Evidence from Japan

Abstract

This paper presents examination of the relation between the role of statutory auditors and corporate governance mechanisms in Japan in the early 1990s. Under Japanese commercial law before 2003, the establishment of an audit committee was required, but not appointment of outside auditors. Consequently, firms came to coexist with and without outside auditors. The empirical question arises of whether outside auditors in Japan are effective monitors or not. We find the following three points in this paper. First, managerial entrenchment effects exist for the appointment of outside auditors. Second, we can find a negative relation between Japanese bank ownership and firms with outside auditors. Finally, financial keiretsu memberships are not significantly effective for the appointment of outside auditors.***.