Board Gender Diversity, Auditor Fees, and Auditor Choice

Abstract

We examine whether the presence of female directors and female audit committee members affect audit quality in terms of audit effort and auditor choice by using observations from a sample of U.S. firms, spanning the years 2001-2011. We find, after controlling for endogeneity and other board, firm, and industry characteristics, that firms with gender-diverse boards (audit committees) pay 6 percent (8 percent) higher audit fees and are 6 percent (7 percent) more likely to choose specialist auditors compared to all-male boards (audit committees). Our findings suggest that boards (audit committees) with female directors (members) are likely to demand higher audit quality, ceteris paribus. Mixit e des conseils d'administration, honoraires des auditeurs et choix des auditeursR ESUM E Les auteurs se demandent si la pr esence de femmes parmi les administrateurs et les membres du comit e d'audit influe sur la qualit e de l'audit, en ce qui a trait au travail d'audit et au choix des auditeurs, en etudiant les observations qu'ils tirent d'un echantillon de soci et es des Etats-Unis, entre 2001 et 2011. Une fois contrôl ees l'endog en eit e et les autres caract eristiques du conseil d'administration, de la soci et e et du secteur d'activit e, ils constatent que les soci et es dont les conseils d'administration (comit es d'audit) sont mixtes versent des honoraires d'audit 6 pour cent (8 pour cent) plus elev es et sont 6 pour cent (7 pour cent) plus susceptibles de choisir des auditeurs sp ecialis es que les soci et es dont les conseils d'administration (comit es d'audit) sont enti erement masculins. Les constatations des auteurs semblent indiquer que les conseils d'administration (comit es d'audit) mixtes sont susceptibles d'exiger une qualit e d'audit sup erieure, toutes choses egales par ailleurs.

Determinants of auditor choice: Review of the empirical literature

“…Very little research has been done on the impact of independence, financial expertise, and the interlocking of audit committee members on the appointment of high‐quality auditors. Our review has also found that certain demographic variables of corporate directors, examined from the perspectives of nonaccounting disciplines, have been introduced into the auditor choice literature (Cheng & Leung, ; Lai et al, ). Future research taking such new directions, while linking corporate boards and audit committees to auditor appointment directly, will certainly enrich our understanding of the incentives and motivations for auditor choice.…”

“…Jiraporn et al () further suggested that the independent boards adopted as a result of the passage of SOX (US House of Representatives, ) are utilized by firms as a substitute for a Big N auditor. Lai, Srinidhi, Gul, and Tsui () documented a positive association between gender‐diverse boards (presence of at least one female director on the board and audit committee) and the appointment of industry‐specialist auditors . Davison et al () concluded that there was a strong link between companies audited by the same public accounting firm and those having common directors in Australia.…”

“…Very little research has been done on the impact of independence, financial expertise, and the interlocking of audit committee members on the appointment of high‐quality auditors. Future research should incorporate interdisciplinary theoretical frameworks; for instance, members' demographic features (Cheng & Leung, ; Lai et al, ); and linking corporate boards and audit committees to the auditor appointment directly will certainly enrich our understanding of the incentives and motivations of auditor choice. With SOX providing authoritative backing to audit committees for overseeing the appointment of external auditors, a number of behavioral studies have appeared shedding light on the personal influence of firm executives on audit committee members in relation to auditor appointment decisions (Abbott et al, ; Almer et al, ).…”

“…Gul et al () suggested that gender‐diverse boards improve the information environment through more intensive oversight than similar all‐male boards. Lai et al () argued that firms with higher gender diversity are likely to demand higher audit quality and recruit industry‐specialist auditors.…”

Optimistic tone and audit fees: Some Australian evidence

“…Control variables are determined based on findings of prior research on determinants of audit fees (e.g., Boo & Sharma, ; Goodwin‐Stewart & Kent, ; Hay et al, ; Huang, Masli, Meschke, & Guthrie, ; Lai, Srinidhi, Gul, & Tsui, ; Yang et al, ). The control variables used in Equation include Big 4 auditor ( B4 ), audit committee independence ( AC_IND ), audit committee financial expertise ( AC_EXP ), nonaudit fees ( LNONAF ), auditor tenure ( TENURE ), type of opinion ( OPINION ), inventory‐to‐total assets ratio ( INVTA ), receivables‐to‐total assets ratio ( RECTA ), number of subsidiaries ( SRSUB ), profitability ( ROA ), leverage ( LEV ), number of segments ( SEGMET ), firm size ( SIZE ), firm age ( AGE ) as a listed company, and year and industry controls.…”