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Reputation Capital of Directorships and Demand for Audit Quality

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  • Antti Fredriksson
  • Anila Kiran
  • Lasse Niemi

Abstract

This study examines whether boards of directors use external auditing to protect their reputation capital. We hypothesize and find that audit quality increases with the level of directors’ reputation capital. More specifically, using ten-year panel data on Finnish listed companies, we find that our measures of reputation capital based on the number of directorships that directors possess and their compensation are positively associated with various proxies for audit quality. We also find that the observed reputation effect on audit fees is stronger in companies with an audit committee, and that reputation capital matters in auditor choice in those companies in particular. In combination, our results add to the literature on the reputation capital of those in charge of corporate governance.

Suggested Citation

  • Antti Fredriksson & Anila Kiran & Lasse Niemi, 2020. "Reputation Capital of Directorships and Demand for Audit Quality," European Accounting Review, Taylor & Francis Journals, vol. 29(5), pages 901-926, October.
    • Handle: RePEc:taf:euract:v:29:y:2020:i:5:p:901-926
    DOI: 10.1080/09638180.2020.1724550
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    Cited by:

    1. Monika Kussetya Ciptani & Mila Reyes & Regitha Seshanda Azizah, 2024. "Balancing Audit Quality to Auditees Cash Reserves: A Phenomenon in Indonesia," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(4), pages 824-835, April.
    2. Alexeyeva, Irina, 2024. "Does board composition impact the timeliness of financial reporting? Evidence from Swedish privately held companies," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 54(C).
    3. Kuo, Nan-Ting & Li, Shu & Jin, Zhen, 2023. "Social trust and the demand for audit quality," Research in International Business and Finance, Elsevier, vol. 65(C).
    4. Lindsay Baran & Silu Cheng, 2024. "Director awards and board effectiveness," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(1), pages 41-73, March.

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