Does board independence affect audit fees? Evidence from recent regulatory reforms

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

6 Scopus Citations
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Original languageEnglish
Pages (from-to)793-814
Journal / PublicationEuropean Accounting Review
Volume25
Issue number4
Online published16 Jan 2016
Publication statusPublished - 2016

Abstract

To enhance board oversight, since 2002, US legislation has required listed companies to have a majority independent board. This paper uses this legislative change to examine the relation between board independence and audit fees. To provide a clean estimate of this relation, we adopt a difference-in-difference approach using a sample matched on client firm characteristics. We find that greater board independence is insignificantly associated with a change in audit fees when client firms operate in a weak information environment. When the information environment is strong, greater board independence is associated with an increase in audit fees. Our results are consistent with the nascent theory emphasizing information asymmetry and provide insight into the effectiveness of the mandated board independence in relation to audit quality.