AUDIT COMMITTEE CHAIR OVERLAP, AUDIT COMMITTEE INDEPENDENCE, AND AUDIT FEES: EVIDENCE FROM CHINA LISTED FINANCIAL INSTITUTIONS

Abstract

Purpose: This study examined the overlap between the audit committee (AC) chair and the AC independence effect on audit fees in China’s listed financial institutions. This study examines whether AC chair overlap and AC independence can enhance or weaken monitoring effectiveness if the external auditor perceives higher inherent risk and whether independent directors on AC pursue high-quality audit service. Design/methodology/approach: This research employs a regression model to estimate the relationship proposed in the hypotheses. The data comprises 126 public financial institutions in China’s Shenzhen Stock Exchange and the Shanghai Stock Exchange. An overall population sample of 120 financial institutions in 2021 will be tested, with data collected by hand from yearly reports and the CSMAR database (excluding 11 *, *st financial institutions). Findings: Our findings reveal that AC chair overlap is linked to inadequate governance and increased inherent risk, which is positive with audit fees. Furthermore, the results show a positive and statistically significant correlation between AC independence and audit fees when firm size is controlled for. Among these control variables, board size, LEV, firm size, and firm loss strongly impact pricing audit services. AC independence is not more essential than firm size when pricing audit fees. Originality/value: In our investigation, we broaden the existing literature on AC chair overlap, AC independence, and pricing audit services, focusing on the extent of the limited literature on AC leadership and filling a void in the research on audit fees in the financial sector. Our study provides evidence of the AC attributes in Chinese two-tier board corporate governance mechanisms.