Board Characteristics and Audit Fees*


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    Accepted by Dan Simunic. We thank Bruce Behn and Roger Hermanson, our co-authors on a related earlier paper, as well as the anonymous reviewers, the editor (Dan Simunic), Mark Beasley, Mike Dugan, Rob Ingram, Zoe-Vonna Palmrose, Sean Peffer, Bob Ramsay, Larry Rittenberg, Gary Taylor, and workshop participants at the University of Alabama and University of Kentucky. We also gratefully acknowledge Lei Chen, Roy Clemons, Brandon Leffew, and Sharon Sexton for their research assistance.


This paper examines the relations between three board characteristics (independence, diligence, and expertise) and Big 6 audit fees for Fortune 1000 companies. To protect its reputation capital, avoid legal liability, and promote shareholder interests, a more independent, diligent, and expert board may demand differentially higher audit quality (greater assurance, which requires more audit work) than the Big 6 audit firms normally provide. The audit fee increases as the auditor's additional costs are passed on to the client, such that we expect positive relations between audit fees and the board characteristics examined. We find significant positive relations between audit fees and board independence, diligence, and expertise. The results persist when similar measures of audit committee “quality” are included in the model. The results add to the growing body of literature documenting relations between corporate governance mechanisms and various facets of the financial reporting and audit processes, as well as to our understanding of the determinants of audit fees.