Abstract
This study contributes to the literature on audit fees by examining the client-specific characteristics associated with audit fees for Malaysian private firms, a relatively underexplored setting, particularly in emerging markets. The study is motivated by the distinctive governance and financing environment of private firms, where close owner-manager relationships and reliance on creditor financing shape agency relationships and create information asymmetry. In this context, audited financial statements serve as an important monitoring mechanism for mitigating information asymmetry and agency conflicts between owner-managers and external stakeholders, particularly creditors. Unlike publicly listed companies, private firms face fewer disclosure requirements and limited regulatory oversight, which potentially increases information asymmetry and agency conflicts. Using data from Malaysian private firms from 2017 to 2020, this study examines whether client-specific characteristics, namely size, leverage, loss status, and operational complexity, are associated with audit fees. The ordinary least squares regressions indicate that private firm size and leverage are positively associated with audit fees. These findings suggest that, even among private firms, auditing helps reduce information gaps and enhance credibility with external stakeholders, especially creditors. This study contributes to the literature on auditing in private firms in emerging markets and offers useful insights for owner-managers, auditors, and regulators into the factors associated with audit pricing.