The purpose of this study is to examine the relationship existing between gender diverse (women directors) audit committees and audit fees.
The authors use a sample of 200 listed Indian firms over a four-year period (2011-2014). Ordinary least squares regression is used to assess whether and how the presence of women directors on audit committees affects the fee paid to the external auditor in India. To deal with the self-selection bias, the authors use a two-stage model developed using Heckman’s (1976) method.
The results show a significant positive relationship between the presence of a woman financial expert on the audit committee and audit fees after controlling for a number of firm-specific and governance characteristics and potential endogeneity with the propensity-matching score analysis. From the demand-side perspective of audit pricing, the results indicate that women financial experts on audit committees increase the need for assurance provided by external auditors. Using interaction terms, the authors find that women with financial expertise on an audit committee have a stronger association with audit fees as entity becomes more complex.
The findings suggest that audit committees with women financial experts are likely to demand higher audit quality,
ceteris paribus. Practical implications
Gender of the financial expert is critical to the audit committee’s effectiveness. The findings of this study have implications for the composition of an audit committee in a firm.
This study contributes to the extant literature by examining the less-researched topic of the association between the women representation on audit committees and audit fees. It also offers further empirical evidence that will influence the debate on the importance of gender diversity in corporations.