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We develop a contingency approach to explain how firm ownership influences the monitoring function of the boardmeasured as the magnitude of external audit fees contracted by the boardby extending agency theory to incorporate the resource dependence notion that boards have distinct incentives and abilities to monitor management. Analyses of data on Continental European companies reveal that while board independence and audit services are complementary when ownership is dispersed, this is not the case when ownership is concentratedsuggesting that ownership concentration and board composition become substitutes in terms of monitoring management. Additional analysis shows that the relationship between board composition and external audit fees is also contingent upon the type of the controlling shareholder.
board of directors; monitoring; corporate governance; ownership structure; audit