Effect of regulatory oversight on the association between internal governance characteristics and audit fees


  • doi: 10.1111/j.1467-629x.2007.00229.x

  • We thank participants at the American Accounting Association 2006 Annual Meeting for their useful comments. We also thank S. Y. Goh, H. L. Sim and S. L. Sim for research assistance. We gratefully acknowledge the financial support provided by Nanyang Technological University.


We examine the relationship between internal governance, external audit monitoring and regulatory oversight for a sample comprising industrial companies and financial/utility companies subject to additional industry-specific regulation. Our results indicate that the association between audit fees and board/audit committee independence and size are weaker for regulated companies. These observations are consistent with the notion that regulatory oversight partially substitutes the external audit as a monitoring mechanism. However, boards/audit committees with more multiple directorships demand a more extensive audit in the presence of regulatory oversight to protect their reputation capital. Our study enhances our understanding of the complex relationships among the major corporate governance elements.