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Board Independence, the Information Environment, and Audit Fees

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  • John Zhang

    (Durham University)

Abstract

To enhance board oversight, since 2002 US legislation has required listed companies to have a majority independent board. This paper uses this legislative change to examine the relation between board independence and audit fees. To provide a clean estimate of this relation, we adopt a difference-in-difference approach using a sample matched on client firm characteristics. We find that greater board independence is insignificantly associated with a change in audit fees when client firms operate in a weak information environment. When the information environment is strong, greater board independence is associated with an increase in audit fees. Our results are consistent with a nascent theory emphasising information asymmetry and provide insight into the effectiveness of the mandated board independence in relation to audit quality.

Suggested Citation

  • John Zhang, 2015. "Board Independence, the Information Environment, and Audit Fees," Proceedings of International Academic Conferences 2804805, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iacpro:2804805
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    Keywords

    audit fee; board independence; information environment;
    All these keywords.

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