The efficiency of corporate boards and firms’ audit fees: the case of the FTSE financial institutions

Abstract

Purpose The quality of financial reporting for the financial institutions is vital for the public, as the negative consequences of manipulated financial statements will not only affect shareholders but also the regulators’ reputation and the society at large. The purpose of this paper is to assess the association between different corporate governance mechanisms and their impact on audit and reporting quality. The gender factor is introduced from a diverse boards’ perspective to highlight any impact of female presence on the quality of financial statements. Design/methodology/approach The authors examine a sample of financial institutions listed on the FTSE-350 index for the years 2011 to 2015. The financial sector has its own and different regulations, and financial reporting framework and auditors are expected to behave into more scrutiny. Bloomberg database is used to obtain governance and financial data, while firms’ annual reports are used to collect audit fees and audit committee information. A panel data regression is used to test hypotheses. The authors also control for unobservable heterogeneity, reverse causality and endogeneity. Findings The results suggest that boards with larger size and higher independence pay higher audit fees to enhance the monitoring capacity and protect the wider group of stakeholders. The results also show that women on boards are likely to reduce the risk of manipulated financial statements, as women are more inclined toward truthfulness, cautiousness and conservatism. In addition, the reported results show that audit committees with more independent members are more inclined toward obtaining higher quality audit to enhance firm’s reporting quality. Originality/value Given the recent governments’ intervention to avoid financial institutions’ negative impact on the economy, this study is relevant and provide policymakers insights into the existing relationships between audit fees and financial institutions’ governance structure.

Nudging toward diversity in the boardroom: A systematic literature review of board diversity of financial institutions

“…This theory is typically linked to the conflict of interest result from the ownership separation (Fama & Jensen, 1983; Jensen & Meckling, 1976). The board diversity literature used it to explore topics such as board diversity influence on the agency conflict and performance of financial firms (Bektas & Kaymak, 2009; Boadi & Osarfo, 2019; Farag & Mallin, 2017; Ghosh, 2017; Kaymak & Bektas, 2008; Kusi, Gyeke‐Dako, Agbloyor, & Darku, 2018; Shettima & Dzolkarnaini, 2018; Talavera, Yin, & Zhang, 2018), CSR reporting quality of financial sector (Tapver, Laidroo, & Gurvitš‐Suits, 2020), CSR practices (Isabel María García‐Sánchez, Martínez‐Ferrero, & García‐Meca, 2018), environmental, social, and governance performance (Birindelli, Dell'Atti, Iannuzzi, & Savioli, 2018), mergers and acquisition performance (Chu, Teng, & Lee, 2016; Hagendorff et al, 2007; Hagendorff & Keasey, 2012), risk taking (Abou‐El‐Sood, 2019; De Vita & Luo, 2018; Yu et al, 2017), compensation policy (García‐Meca, 2016), audit fees (Nehme & Jizi, 2018), earnings management (Fan, Jiang, Zhang, & Zhou, 2019), determinants of banks' bailouts (Fernandes, Farinha, Martins, & Mateus, 2016), and banks' efficiency (Ramly, Chan, Mustapha, & Sapiei, 2017). It is noteworthy that the agency argument helps us to understand the supervisory role of the board members to monitor and control management activities, whereas multiple theoretical perspectives enable us to better interpret the other roles of the board of directors.…”

“…These topics have also received less attention to financial institution researchers, and more researches are encouraged to explore these topics with board diversity attributes. For instance, there is only one study to investigate the link between board diversity and audit fees (Nehme & Jizi, 2018).…”

Ownership concentration, foreign ownership and auditing: evidence from SMEs in Latin America

“…In addition, audit fees may indicate the disclosure requirements of various stakeholders (Li et al, 2019). Good corporate governance with regard to corporate boards may pay high audit fees to improve disclosure and protect a wide group of stakeholders (Nehme and Jizi, 2018). The agent theory we discussed above regarding the ownership-governance relationship is further applicable to the ownershipaudit relationship.…”

Tracking the development of audit committees in Singapore listed companies

“…Other studies have also documented the importance of AC independence in mitigating management opportunism in financial reporting (Agyei-Mensah, 2019;Ali et al, 2018;Deslandes et al, 2020;Inaam and Khamoussi, 2016;Kim and Klein, 2017;Lee and Fargher, 2018;Lin et al, 2015;Mohammad and Wasiuzzaman, 2020;Nehme and Jizi, 2018;Safari, 2017;Samaha et al, 2015;Sultana et al, 2015).…”