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

Zhang, J.; Yu, Y.

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


Authors

J. Zhang

Y. Yu



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.

Citation

Zhang, J., & Yu, Y. (2016). Does board independence affect audit fees? Evidence from recent regulatory reforms. Financial Markets, Institutions and Instruments, 25(4), 793-814. https://doi.org/10.1080/09638180.2015.1117007

Journal Article Type Article
Acceptance Date Oct 16, 2015
Online Publication Date Jan 14, 2016
Publication Date Oct 1, 2016
Deposit Date Oct 26, 2015
Publicly Available Date Jul 14, 2017
Journal Financial Markets, Institutions and Instruments
Print ISSN 0963-8008
Electronic ISSN 1468-0416
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 25
Issue 4
Pages 793-814
DOI https://doi.org/10.1080/09638180.2015.1117007
Public URL https://durham-repository.worktribe.com/output/1419333

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