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Board Turnover, Director Characteristics and Audit Fees

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  • Etienne Redor

    (Audencia Business School)

Abstract

Two competing theories correlate board characteristics and audit fees. The Audit-Risk Perspective suggests that there is a negative relationship between the quality of corporate governance and audit fees while, contrarily, the Demand-Based Perspective posits a positive relationship between these two variables. In this paper, I reexamine the relationship between corporate board characteristics and audit fees by analyzing whether auditors adjust their fees in response to board turnover. If the departure of an effective director reduces the quality of corporate governance, a change in the audit fees should be observed. I show that when the variables are individually included in the regressions, audit fees significantly go down only when an independent director or a female director leaves. The departure of other board members has no impact on audit fees. When both of these variables (independence and gender) are included in the model, a significant decrease in audit fees is observed only when an independent director leaves. On the basis of my analysis, I conclude that the Demand-Based Perspective is correct and that director independence is the most significant variable for explaining the changes in audit fees following a change in corporate board membership.

Suggested Citation

  • Etienne Redor, 2017. "Board Turnover, Director Characteristics and Audit Fees," Economics Bulletin, AccessEcon, vol. 37(4), pages 2446-2457.
    • Handle: RePEc:ebl:ecbull:eb-17-00153
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    References listed on IDEAS

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    More about this item

    Keywords

    Audit committee; Board turnover; Audit fees; Director independence; Director gender; Director expertise.;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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