Corporate executive’s gender and audit fees

Abstract

Purpose – The purpose of this study is to investigate the association between a corporate executive’s gender and audit fees. Based on the findings of extant research that there are gender-based differences that may have implications for the financial reporting process, the authors posit an association between CEO gender and audit fees. Design/methodology/approach – The authors test their hypothesis by performing both univariate and multivariate regression analyses on a sample of 8,402 Compustat firm-year observations from US firms for 2003-2010. Findings – The authors' findings indicate that firms with female CEOs are associated with higher audit fees. Their results hold after controlling for self-selection bias and factors shown by prior studies to be associated with audit fees. Research limitations/implications – Although the authors control for factors that would increase audit fees, their study is limited by the degree to which higher audit fees reflect higher quality audits. Also, because their sample is from large publicly traded nonfinancial firms, their results may not be applicable to other types of firms. The authors study has implications for policy setting because their findings provide some evidence of a significant association between a CEO characteristic (gender) and financial reporting quality. Their findings, thus, provide some support for the Securities and Exchange Commission requirement that CEOs should certify their firm’s financial statements. Originality/value – The authors study contributes to the audit fees and corporate governance literature by providing empirical evidence of an association between audit fees and CEO gender. To their knowledge, no study, to date, has investigated this association.

Gender‐diverse boards and audit fees: What difference does gender quota legislation make?

“…Consistently with the findings of Huang et al. (), firms with female CEOs ( FEM_CEO ) and CEO duality ( DUAL ) are likely to be positively associated with audit fees. Furthermore, long tenure ( CEO_TEN ) is another indication of CEO power and the CEO's influence on organizational decisions.…”

“…Audit committee size (ADC_SIZE), audit committee independence (ADC_IND) and the number of audit committee meetings (ADC_MEET) are expected to lead to higher audit fees (Krishnan & Visvanathan, 2009;Vafeas & Waegelein, 2007;Zaman et al, 2011). Consistently with the findings of Huang et al (2014), firms with female CEOs (FEM_CEO) and CEO duality (DUAL) are likely to be positively associated with audit fees. Furthermore, long tenure (CEO_TEN) is another indication of CEO power and the CEO's influence on organizational decisions.…”

“…For example, the auditor may have an in‐depth (lesser) understanding of an established (new) client's accounts. Additionally, firms audited by Big 4 auditors ( BIG ) pay higher audit fees (Chan et al., ; Huang et al., ; Kacer et al., ; Peel & Makepeace, ; Zaman et al., ) and, due to the superior quality of audit services provided, reinforce their competitive advantage over non‐Big 4 auditors through audit pricing (Zhang et al., ). Audit fees will therefore be higher for firms audited by Big 4 audit firms.…”

“…Recently, the debate among scholars in corporate finance and accounting has focused on the impact of gender diversity on board proceedings. These studies highlight that gender differences among directors and managers can be explained by differences in their communication skills, decision-making style, level of overconfidence, risk tolerance, diligence, and monitoring intensity (Abbott, Parker, & Presley, 2012;Adams & Ferreira, 2009;Bennouri et al, 2018;Gul et al, 2011;Gull et al, 2018;Gyapong et al, 2016;Harjoto et al, 2015;Huang & Kisgen, 2013;Huang et al, 2014;Ittonen et al, 2010;Schubert, 2006). The ability to communicate effectively is an important skill for performing well in key managerial positions.…”

“…Following previous studies, we control for variables expected to affect audit fees. Board size (BD_SIZE) is likely to be positively associated with audit fees (Huang et al, 2014). Boards with independent directors (BD_IND) are more concerned about their reputation and demand incremental audit effort (Carcello et al, 2002;Zaman et al, 2011).…”