The Impact of Board Reforms on Audit Fees: International Evidence

67 Pages Posted: 27 Dec 2022

See all articles by Incheol Kim

Incheol Kim

University of Texas Rio Grande Valley (UTRGV) (Formerly University of Texas-Pan American) - College of Business and Entrepreneurship

Joon Ho Kong

Stevens Institute of Technology - School of Business

Rong Yang

Rochester Institute of Technology

Date Written: December 22, 2022

Abstract

In this study, we investigate whether and to what extent country-level board reforms affect audit pricing decisions. We find audit fees are positively associated with board reforms. An increase in audit fees is more pronounced for firms that switched up to Big N auditors following board reforms. After board reforms, firms are less likely to issue restatements, and both analyst forecast accuracy and management forecast frequency increase, indicating improved audit quality and information transparency in the post-reform period. Moreover, the positive relation between board reforms and audit fees is more evident for firms in countries that lack institutional governance mechanisms, captured by emerging capital markets, high political risk, weak governmental enforcement actions, and low corporate governance quality. Overall, our findings broadly support the view that audit fees increase upon demand for better audit quality.

Keywords: Audit Fee, Board Reform, Audit Committee, Corporate Governance, Restatement, Analyst Forecast, International Accounting

JEL Classification: G3, M42, K20

Suggested Citation

Kim, Incheol and Kong, Joon Ho and Yang, Rong, The Impact of Board Reforms on Audit Fees: International Evidence (December 22, 2022). Available at SSRN: https://ssrn.com/abstract=4310099 or http://dx.doi.org/10.2139/ssrn.4310099

Incheol Kim

University of Texas Rio Grande Valley (UTRGV) (Formerly University of Texas-Pan American) - College of Business and Entrepreneurship ( email )

1201 W University Dr
Edinburg, TX 78539
United States

Joon Ho Kong

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

Rong Yang (Contact Author)

Rochester Institute of Technology ( email )

Saunders College of Business
Rochester Institute of Technology
Rochester, NY 14623
United States

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