Board Diversity and the Demand for Higher Audit Effort

Abstract

We examine whether female corporate board membership affects the board's demand for audit effort measured by audit fees. After correcting for selectivity bias and controlling for other known board, firm and industry characteristics, we find significantly higher audit fees in firms that have at least one female director and in firms with a higher proportion of female directors on the board. The effect is also significant for female non-executive director presence and their proportion. Our findings suggest that boards with female directors are more likely to demand higher monitoring in the form of more audit effort, ceteris paribus. Exploratory analysis of the differential effect of female board membership suggests that such boards demand incremental audit effort in situations of high information asymmetry, complexity and ethical dilemma.

Keywords: Audit Fees, Corporate Governance, Female director, Gender diversity

JEL Classification: M41