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The impact of demographic characteristics of CEOs and directors on audit fees and audit delay
Maretno Agus Harjoto Indrarini Laksmana Robert Lee
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Maretno Agus Harjoto Indrarini Laksmana Robert Lee , (2015),"The impact of demographic characteristics of CEOs and
directors on audit fees and audit delay", Managerial Auditing Journal, Vol. 30 Iss 8/9 pp. -
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http://dx.doi.org/10.1108/MAJ-01-2015-1147
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1. Introduction
This paper investigates how the demographic characteristics of CEOs and audit
committee members affect the level of audit services and the timeliness of audit reporting.
Specifically, we examine whether the gender and ethnicity of these individuals are important
determinants of audit fees and audit delay. Prior studies use audit fees as a proxy for audit
efficiency (e.g., Raghunandan and Rama 2006; Masli et al. 2010) and audit quality (e.g.,
Carcello et al. 2002; Abbott et al. 2003) and use audit delay as a proxy for timely audit reporting
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(e.g., Ettredge et al. 2006; Masli et al. 2010). The importance of audit fees and audit delay is
well established, and this study examines how the gender and ethnicity of top management and
The motivation for this study comes from three sources. First, individual differences due
to both gender and ethnicity are likely to influence decision making. In our setting, executives
and directors make decisions that will influence the quality, efficiency and timeliness of financial
reporting. Recent studies in corporate finance, accounting, and corporate governance have
documented differences between men and women in managerial and board decision making.
These studies suggest that female top executives and directors are more risk averse and less
likely to be overconfident in their decision-making; moreover, they are more diligent and have
preference for a higher level of monitoring intensity than their male counterparts (Huang and
Kisgen 2012; Faccio et al. 2014; Barua et al. 2010; Adams and Ferreira 2009; Gul et al. 2011;
Our study is the first that investigates the associations between the ethnicity of CEOs and
directors and both audit fees and audit delay. Gender and ethnic minorities have been
significantly underrepresented in corporate leadership roles. Social discrimination has been cited
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as one of the reasons (Finkelstein et al. 2009). The stream of research on social discrimination
has suggested that racial minority individuals generally need a higher degree of education and
work experience to obtain a leadership role (Bilimoria and Piderit 1994; Hillman et al. 2002).
Park and Westphal (2013) find social discrimination continues even after these individuals obtain
leadership positions. They find that racial minority CEOs are more likely to receive blame for
low firm performance than white CEOs. Like female executives, ethnic minority executives face
the same labor market challenges, such as the wage gap and glass ceiling (Alon and Haberfeld
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2007) and the scrutiny from the labor market (Park and Westphal 2013).
Alhough there are only a few existing studies examining the effect of ethnic diversity on
management and board decision-making, prior studies have documented that ethnic minorities
share the same risk perception as women (Flynn et al. 1994; Finucane et al. 2000). Both females
and individuals of racial minority face social inequality and challenges, and thus, have a stronger
external pressure to succeed in their roles (Cheng 1997; Kennedy and Schumacher 2005),
resulting in their being more risk averse than white males. With greater social pressure to
maintain their leadership roles, racial minority and female CEOs and directors are more likely to
have a preference for greater assurance (i.e., reliability of financial reporting) and more timely
Second, existing studies examining determinants of audit fees and audit delay have
diligence, and expertise (Raghunandan and Rama 2006; Ettredge et al. 2006; Masli et al. 2010;
Carcello et al. 2002; Abbott et al. 2003). These studies, however, have not given much attention
on the demographic characteristics of top executives and directors (audit committee members).
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To the best of our knowledge, there are three studies that are closely related to our study. Two
existing studies investigate the relation between director gender and audit fees and show
conflicting and inconclusive results (Gul et al. 2008 and Ittonen et al. 2010).1 Our study attempts
to explain these conflicting results. The third study (Huang et al. 2014) examines the association
between CEO gender and audit fees. Our study adds to Huang et al. (2014) by examining not
only audit fees, but also audit delay and their associations with both gender and ethnicity of CEO
and directors.
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Finally, with respect to corporate boards, the U.S. Securities and Exchange Commission
(SEC) in recent years has encouraged firms to improve board diversity.2 On December 16, 2009,
the SEC adopted a new set of rules requiring publicly traded companies to disclose whether and
how board diversity is considered in the selection process of director nominees (SEC Release 33-
9089 issued on December 16, 2009). In a similar spirit, in November 2013, the European
Parliament issued a proposal for improving the gender balance among non-executive directors of
companies listed on stock exchanges by voting in favor of a draft law requiring a 40 percent
quota for female directors. While these rules recognize the importance of board diversity, the
effectiveness of these diversely comprised boards in overseeing the financial reporting process is
an empirical question. Our study examines the practical implications of whether gender and
ethnic diversity in boardrooms adds value to board oversight of the financial reporting process,
We present two competing audit fee hypotheses based on the supply and demand side of
audit pricing. Risk-averse individuals (i.e., female and ethnic minority CEOs and directors) are
likely to be more sensitive to the capital and labor market pressure to maintain high quality
reporting. On one hand, female and ethnic minority CEOs and directors could have preferences
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for strong internal control systems to maintain acceptable levels of reporting risk.3 From the
auditors perspective (i.e., the supply side), a strong internal control environment will decrease
control risk, and in turn, lower audit fees, suggesting a negative relation between female and
ethnic minority CEO and directors and audit fees. On the other hand, risk-averse CEOs and
directors could also respond to the pressure to maintain high quality reporting by demanding
greater assurance (e.g., by requesting additional tests or more experienced auditors) above and
beyond the auditors optimal level. Consistent with the demand side argument, higher demand
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for assurance would result in higher audit fees, suggesting a positive relation between audit fees
Using the data of U.S. publicly-traded firms between 2000 and 2010, we find that firms
with female and ethnic minority CEOs pay significantly higher audit fees than the firms of their
Caucasian male counterparts. We also document that the percentage of ethnic minority directors
on audit committees are positively associated with audit fees. Both results provide support for
the demand side of audit pricing. We do not find evidence that the presence of female audit
committee members is associated with audit fees. However, we do find that audit committees
with female chairs are associated with lower audit fees, consistent with the supply side argument.
Due to their risk preference, we hypothesize that female and ethnic minority CEOs are
more likely to avoid audit delay as the delay reduces the timeliness of audited financial
statements and could signal problems with internal control systems and/or other financial
reporting issues (Ettredge et al. 2006; Knechel and Payne 2001). We find evidence that female
CEOs are associated with shorter audit report delay, suggesting that they are sensitive to the
market pressure to avoid audit delay. However, we find that CEO ethnicity is not associated
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committee members and audit delay. On one hand, directors who require a higher degree of
assurance are less likely to be concerned with the pressure to avoid reporting delay than with the
pressure to protect their own reputation as good monitors. Compared to CEOs, audit committee
members are arguably less sensitive to the capital market pressure to avoid audit delay because
directors receive a relatively smaller portion of their total compensation from serving on one
corporate board. Since female (ethnic minority) directors are more likely to demand additional
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assurance, the presence of these directors will be positively associated with audit delay.
However, if these female (minority) directors who demand for greater assurance are also
sensitive to the pressure to avoid audit delay (e.g., using more efficient audit procedures) because
they have social pressure to maintain their board roles, then the presence of such directors will be
negatively associated with audit delay. Our results show supporting evidence to the latter
argument that audit committees with greater proportion of female and ethnic minority members
Our study contributes to the stream of research on audit fees, audit delay and corporate
gender and ethnicity, are important determinants of audit fees and audit delay. CEOs and audit
committee members are important decision makers on financial reporting and auditing issues,
but their individual differences have not been much examined in existing studies. Our study uses
the research settings in which individual differences, along gender and ethnic lines manifesting
in differences in tendencies toward risk aversion, diligence and preference for monitoring
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leadership and boardrooms. In addition to gender, we examine ethnicity as prior studies have
shown that ethnic minorities exhibit the same risk perception as women. Since the impact of
ethnic diversity on managerial and board decision making has not been much explored, it
provides an interesting research opportunity. We complement other studies (e.g., Abbott et al.
2012) documenting the positive impact of gender-diverse boards on board decisions on financial
reporting issues. Our study shows that both gender diversity and ethnic diversity add value to
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associated with greater demand for audit services (measured by audit fees) and that both gender
and ethnic diversity are associated with timely audit reporting (measured by audit delay). We
also complement other studies documenting the positive impact of female leadership on financial
reporting issues (e.g., Barua et al. 2010). Our results suggest that both female and ethnic
minority CEOs demand greater assurance and are willing to pay for higher audit fees than male
Caucasian CEOs, and that female CEOs are more likely to avoid audit report delay than male
CEOs.
Our study also extends prior research examining director and CEO gender as it relates to
audit fees (Gul et al. 2008; Ittonen et al. 2010; Huang et al. 2014). Our study examines
characteristics of both directors (audit committee members) and CEOs, as each group serve
important and different roles in the audit process. Finally, we examine both audit fees and audit
delay as prior studies have documented that these variables are important measures of financial
reporting quality and are correlated. As a proxy for audit quality or audit effectiveness, audit
fees relate to the reliability of the financial reporting process and the audited financial
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statements. Audit delay measures the timeliness of audited financial statements and reported
earnings.4
studies and discusses the development of the hypotheses. Section 3 describes our research
methodology, followed by a discussion of our empirical findings and robustness tests. Finally,
Section 4 summarizes our findings, provides conclusions and implications, and discusses
limitations.
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Recent studies in corporate finance and accounting have begun to examine the role of
gender on managerial and board decisions. The existing literature shows that the differences
between male and female executives and directors in their decision making process could be
explained by the differences in, among other things, their level of overconfidence, risk tolerance,
diligence, and monitoring intensity (e.g., Huang and Kisgen 2012; Faccio et al. 2014; Adams and
Ferreira 2009; Gul et al. 2011; Ittonen et al. 2010; Abbot et al. 2012; Ittonen et al. 2013).
Huang and Kisgen (2012) document that female CEOs are less likely to be overconfident
in their decision making than male CEOs; the former provide a wider range of earnings forecasts,
are more likely to exercise their in-the-money stock options earlier, and are less likely to conduct
value destroying acquisitions. Faccio et al. (2014) discover that firms with female CEOs tend to
make less risky choices, and as a result, have lower leverage, less volatile earnings, and higher
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Examining the role of gender on corporate boards, a number of studies suggest that
female directors can help improve corporate governance. Adam and Ferreira (2009) find that
female directors have better attendance records and are more involved with committees that
require intense monitoring (e.g., audit, nominating, and corporate governance committees) than
male directors. Gul et al. (2011) find that corporate boards with more female directors are
associated with greater stock price informativeness when corporate governance is weak,
suggesting that gender-diverse boards act as substitutes for more effective corporate governance.
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In addition, studies have found that females have helped improve the overall financial reporting
quality by their monitoring intensity. Abbott et al. (2012), for example, document that the
presence of female board members is associated with a lower likelihood of financial restatement.
As for the role of ethnic diversity in management and board decision making, this area
has not been much examined. Prior research in health, psychology, sociology, and risk analysis
literature has found that minorities share the same risk perception as women (Flynn et al. 1994;
Finucane et al. 2000). These studies argue that both females and individuals of racial minority
face social inequality, resulting in their adoption of a higher risk perception (i.e., more risk
averse) than white males.5 In addition, ethnic minorities and females have been found to have
different extrinsic work values than white males (Ng and Sears 2010). Ng and Sears (2010) find
that extrinsic work values, such as the importance of salary level, benefits, and job security, were
reported higher by ethnic minorities and women. Since ethnic minorities and women are more
concerned about job security than white men, these underrepresented groups of individuals will
have a greater incentive and pressure to succeed and to maintain their leadership positions.
The literature on ethnic diversity does include some theories which predict positive
outcomes of ethnic diversity on group performance (Cox et al. 1991; Cox 1993). These theories
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assume individuals from different ethnic backgrounds have different knowledge bases, different
diversity would result in positive outcomes such as increased information, enhanced problem
solving ability, constructive conflict and debate, increased creativity, higher quality decision, and
The stream of literature on determinants of audit fees was pioneered by the seminal
paper of Simunic (1980). Hay et al. (2006) conducted a meta-analysis of the audit fee literature
and classified determinants of audit fees into three categories: firm (client), auditor, and
engagement attributes. Earlier audit fee studies focused on these firm-level characteristics. With
the heightened public interest in corporate governance following the outbreak of accounting
scandals, more recent studies have begun examining board and audit committee characteristics
(i.e., independence, diligence, and expertise) as determinants of audit fees (Carcello et al. 2002;
Abbott et al. 2003; Goodwin-Stewart and Kent 2006). Existing research, however, has not given
much attention to individual characteristics of top executives and directors (audit committee
Within this stream of literature, prior studies on audit fees present two views on audit
pricing. One stream of studies views audit fees from the supply side, linking audit fees and
auditor risk. Based on the supply side perspective, audit fees are seen as a proxy for audit
efficiency (e.g., Raghunandan and Rama 2006; Masli et al. 2010). Audit fees result from a
production function in which a strong control environment will decrease the external auditors
assessed level of control risk, reducing the need for external audit services and lowering audit
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fees (Simunic 1980). However, this theoretical model assumes a constant demand for audit and
ignores the different demand forces driving the level of audit fees.
The other stream of research views audit pricing from the demand side. The demand for
auditing is a function of a set of risks faced by various stakeholders with interests in the outcome
of the audit (Hay et al. 2006). When multiple stakeholders become involved in corporate
governance decisions, the total demand for external audit, and thereby audit fees, will increase
because those with authority for setting the level of assurance (e.g., management and audit
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committee) need to protect their own interests (Knechel and Willekens 2006). For example,
while audit committee members generally have concerns about the quality of the financial
reporting process, a risk-averse committee member may also have concerns for his or her
personal loss, such as legal and reputational costs, arising from potentially fraudulent
management activities. As a result, the audit committee member may press for greater assurance
than is necessary to reduce the reporting risk to an acceptable level for all shareholders, shifting
the additional cost of audit to shareholders who have little power in determining the level of
audit work (Carcello et al. 2002). Based on the demand side argument, audit fees are seen as a
proxy for audit quality (e.g., Carcello et al. 2002; Abbott et al. 2003).
Given the regulatory standards (e.g., Section 302 and 404 of the Sarbanes-Oxley Act) and
the pressure from both the capital market and the executive labor market, most CEOs desire audit
quality because it relates to reporting quality, and they perceive their reputation and personal
welfare are at stake7. CEOs (and other executives) could lose their jobs and face potential legal
and reputational costs when issuing financial reports and disclosure of poor quality. Prior
research has shown that top executive turnover is associated with poor reporting and disclosure
quality, such as restatement (Desai et al. 2006). CEOs who are forced to turnover generally find
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new positions that are, on average, inferior to their prior jobs (Fee and Hadlock 2004). In
addition, Banker et al. (2013) find that past performance affects the salary of continuing and
newly appointed CEOs, providing evidence that reputation matters in determining executive
compensation. With job security and compensation being influenced by financial reporting
quality, CEOs will naturally desire to provide high quality reports and disclosure.8
Our study first examines whether CEO demographic characteristics, specifically gender
and race or ethnicity, affect audit fees. Following the demand and supply side arguments of
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audit pricing, we present two competing hypotheses. Since CEOs are strongly influential in
determining the level of audit assurance and risk-averse CEOs are more sensitive to the pressure
to protect their reputational capital, we argue that female (ethnic minority) CEOs will demand
more audit services than male Caucasian CEOs. This view is consistent with Cao et al. (2012),
documenting that more reputable firms have higher audit fees because these firms are willing to
pay for more audit services to protect their reputation. Thus, the presence of female and minority
CEOs is associated with greater assurance (i.e., more audit hours or greater proportion of
On the other hand, their preference for lower risk taking could also encourage female
(ethnic minority) CEOs, as compared to male Caucasian CEOs, to respond to regulatory and
market pressures by building stronger internal control systems. The increased level of internal
controls, in turn, reduces the external auditors assessed control risk and lowers audit fees. Thus,
the presence of female and minority CEOs can also be associated with lower audit fees. Under
both the demand and supply perspectives, the risk preference of female and minority CEOs
causes them to shift costs to external shareholders through additional audit fees or additional
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costs to build stronger internal control systems. Given the two competing hypotheses, we
Our second set of hypotheses relates to the gender and ethnicity of audit committee
members and audit fees. Group dynamics in corporate boards and their committees vary
females and ethnic minorities could influence the board (committee) decision making process.
Work group diversity literature has found both positive and negative effects of diversity on group
performance (Jackson et al. 2003; Ilgen et al. 2005; Knippenberg and Schippers 2007). The
general intuition is that group diversity creates a positive effect on group performance by
introducing a wide range of knowledge and skills that fosters different perspectives. However,
the negative effect of group diversity is that diverse perspectives could clash and hinder group
performance and progression. In our subsequent discussion, we assume that the positive effect
Audit committees are responsible for overseeing the financial reporting functions,
including internal control and compliance systems, internal audit functions, and external audit
functions. These committee members face reputational costs for failing to perform their
monitoring duties. Prior research has shown that directors with reputation as effective
(ineffective) monitors are rewarded (punished) with increases (decreases) in the number of
directorships held (Gilson 1990; Shivdasani 1993; Harford 2003; Farrell and Whidbee 2000). In
addition, auditor committee members experience turnover when their companies have
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We argue that more risk-averse committee members (i.e., women and minorities) will
have preferences for greater assurance to protect their reputations as good managers. Greater
assurance could be achieved in two ways. First, audit committees could authorize the purchase
of more audit services (i.e., more hours and/or greater proportion of experienced auditors
assigned to the audit), leading to higher audit fees. This view is consistent with the demand side
argument. Prior studies have provided evidence supporting the demand side argument; board
(audit committee) independence, diligence, and expertise are positively associated with audit
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fees (e.g., Carcello et al. 2002; Abbott et al. 2003; Goodwin-Stewart and Kent 2006; Gul et al.
2008).11 These studies suggest that directors (committee members) with certain characteristics
have greater demand for audit services, resulting in higher audit fees. Consistent with the
demand side argument, female and minority audit committee members, due to their risk
preferences, will support the purchase of more audit services to reduce reporting risk and protect
their reputations. Therefore, the presence of female and minority audit committee members is
management to build stronger internal control systems and being more involved in overseeing
the financial reporting process. This approach affects the external auditors assessment of the
internal control environment, reducing control risk and potentially decreasing audit effort and
audit fees. Prior studies have shown that independent audit committees and committees with
financial experts are less likely to be associated with internal control problems (Krishnan 2005;
Zhang et al. 2007)12 suggesting that having certain types of individuals serve on audit
committees could affect the internal control environment. In line with the supply side
perspective, since female (minority) committee members have lower risk preferences, they will
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reduce reporting risk by being more involved in the internal audit process and the oversight of
internal control and compliance systems. This view is also consistent with the empirical
evidence documenting female directors as being more diligent and exhibiting a preference for
higher levels of monitoring intensity than male directors (Adam and Ferreira 2009; Abbott et al.
H2a: Ceteris paribus, the proportion of female audit committee members is associated with
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audit fees.
H2b: Ceteris paribus, the proportion of ethnic minority audit committee members is
associated with audit fees.
Following prior studies, we define audit delay (audit report lag) as the length of time
from a companys fiscal year-end to the date the auditors sign their report (Ettredge et al. 2006).
Audit delay is a proxy for the timeliness of audit reports, and thus, the timeliness of reported
earnings. Recent research on audit delay has shown that audit delay is positively associated with
the presence of material weaknesses in internal control over financial reporting (Ettredge et al.
2006). In addition, audit delay is positively associated with the implementation of related
disclosure and auditing regulations, such as Section 404 of Sarbanes-Oxley Act of 2002
(Krishnan and Yang 2009; Ettredge et al. 2006), and Public Company Accounting Oversight
Board (PCAOB) Auditing Standards No. 2 on internal control and No. 3 on documentation
Our third set of hypotheses examines the relationship between audit delay and CEO
gender and ethnicity. Prior research on earnings announcement has long shown that the late
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announcements (Givoly and Palmon 1982; Chambers and Penman 1984; and Kross and
Schroeder 1984). Late announcements will reduce the timeliness of earnings. Due to their risk
preference, we argue that female and ethnic minority CEOs are more likely to avoid audit delay
because the delay not only reduces the timeliness of audited financial reports, but also signals
problems with internal control systems and/or other financial reporting issues (Ettredge et al.
2006; Knechel and Payne 2001). Because female and ethnic minority CEOs are more sensitive
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to the pressures exerted by the capital and labor markets for both reliable and timely reporting,
we expect a negative relationship between the presence of female (minority) CEOs and audit
delay.
CEOs could avoid audit delay using one of these two strategies. First, CEOs could build
a strong control environment, reducing the auditors assessment of control risk and substantive
testing. Second, CEOs could also demand that the external auditor use more efficient audit
procedures, such as assigning more experienced (managers and partners) and specialized auditors
to the audit, and performing more interim audit work before the year end. The negative
relationship between female (minority) CEOs and audit delay is consistent with both the supply
and demand side arguments of audit pricing. On one hand, risk-averse CEOs who have concerns
with late reporting are more likely to build strong internal control systems, lowering the
likelihood of audit delay. On the other hand, risk-averse CEOs who demand greater assurance,
but are sensitive to the pressure to avoid audit delay, will ask for an efficient audit. In this case,
the demand for greater assurance will not increase the likelihood of audit delay.
H3a: Ceteris paribus, the presence of a female CEO is negatively associated with audit
delay.
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H3b: Ceteris paribus, the presence of an ethnic minority CEO is negatively associated with
audit delay.
Audit committee members are less sensitive to the capital market pressure to avoid audit
delay because directors, compared to CEOs, receive a relatively smaller portion of their total
compensation from serving on one corporate board. In addition, audit committee members are
usually outside directors. Compared to internal directors, outside directors are more responsive
to the pressure to protect their reputations as good monitors (Fama and Jensen, 1983). On one
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hand, more risk-averse directors (i.e., females and minorities) will require a higher degree of
assurance, but are less likely to be concerned with the pressure to avoid reporting delay than with
the pressure to protect their own reputation as good monitors. Demand for greater assurance
could lengthen the course of the audit when auditors need to perform additional tests (e.g.,
finding material weaknesses in internal control systems) and to resolve audit issues with
management. In this case, the presence of female (minority) audit committee members is
positively associated with audit delay. On the other hand, when risk-averse directors who
demand for greater assurance are also sensitive to the markets expectation to avoid audit delay,
such directors are likely to press auditors to use more efficient audit procedures. In this case, the
Given the two competing arguments, our fourth set of hypotheses is non-directional.
H4a: Ceteris paribus, the proportion of female audit committee members is associated with
audit delay.
H4b: Ceteris paribus, the proportion of ethnic minority audit committee members is
associated with audit delay.
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Our sample period covers firm years between 2000 and 2010. We use audit data from the
Audit Analytics database, financial data from Compustat, stock market data from Center for
Research in Security Prices (CRSP), CEO tenure and CEO turnover data from Execucomp, and
director data from RiskMetrics Investor Responsibility Resource Center (IRRC). The combined
dataset has 15,536 observations across 1,674 firms. After deleting observations with missing
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variables, our final sample consists of 12,153 observations from 1,642 firms.
Our dependent variables are LAFEE (the natural log of audit fees) and LADELAY (the
natural log of number of calendar days from fiscal yearend to the date of audit report). Table 2
presents that the mean and median of audit fees are $3.024 million and $1.337 million
respectively, indicating that the mean of audit fee data is skewed to the right. The mean and
median of number of days of audit delay are approximately 55 days and 56 days, respectively.
For our multivariate analyses, we used four CEO gender/ethnicity categories and constructed
three indicator variables: WWCEO (white women CEOs), WMCEO (women ethnic minority
CEOs), and MMCEO (male ethnic minority CEOs). Ethnic minority is defined as being Black,
Hispanic, or Asian. The base group is white male CEOs. On average, 7.2 percent of firms in our
sample have white women CEOs (WWCEO), 2 percent have women ethnic minority CEOs
(WMCEO), and 6 percent of firms in our sample have male ethnic minority CEOs (MMCEO).14
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(PCTWAUD and PCTMAUD) are 11.8 percent and 5.4 percent, respectively. The average
percentages of female directors and ethnic minority directors on boards are 38.2 percent and 4.1
percent, respectively (untabulated). We find that 6.8 percent of our sample firms have audit
committees with female chairs (WAUDCHR), while only 0.2 percent of the sample firms have
audit committees with ethnic minority chairs (MAUDCHR). In addition, we find 5.1 percent of
Consistent with prior research, we control for other variables associated with audit fees
and audit delay (Ettredge et al. 2006; Raghunandan and Rama 2006; Masli et al. 2010). Table 1
presents the definition of variables, directional expectations, and references to existing studies.
For audit fee analyses, the control variables are modeled after Raghunandan and Rama (2006)
and Masli et al. (2010). More specifically, we control for firm size (SIZE), complexity
(RECINV, FOREIGN, GEOSEG), risk (LIQ, LEV), industry, financial condition (ROA, LOSS,
SOX era, and firm age (FIRMAGE). In addition, we include several control variables for board
characteristics and other CEO attributes (Carcello et al. 2002; Adams and Ferreira 2009; and
Bliss 2011).
For our audit delay analyses, the control variables are modeled after Ettredge et al. (2006)
and Masli et al. (2010). With the exception of RECINV, FOREIGN, LIQ, and BIG4, we control
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for the same variables as those in our audit fee model. We also control for whether the firm had
a change in auditors (AUDITCHG), reported extraordinary items (EXT), and received an audit
opinion other than unqualified opinion (AUDOPIN). Finally, we control for audit fees (LAFEE)
Table 3 provides the distribution of our sample firms across 48 industries based on the
Fama and French (1997) industry classifications. The top 5 industries in our sample are
Motels, and Real Estate. Table 3 shows that there are variations of audit fees and audit delay
Table 4 presents the correlation matrix among audit fees, audit delay, gender and
ethnicity variables, and expertise variables. The correlation between audit fees and audit delay is
positive and significant. We find significant and positive correlations between audit fees and
white women CEOs (WWCEO), women ethnic minority CEOs (WMCEO), and male ethnic
minority CEOs (MMCEO), supporting the demand side argument of audit pricing. We observe
negative correlations between audit delay and white women CEOs (WWCEO), women ethnic
minority CEOs (WMCEO), and male ethnic minority CEOs (MMCEO), suggesting that female
and minority CEOs are more sensitive to the pressure to avoid audit delay. We find similar
evidence that the proportion of ethnic minority audit committee members (PCTMAUD) is
positively correlated with audit fees and negatively correlated with audit delay. We find that the
proportion of female audit committee members (PCTWAUD) is not correlated with audit fees,
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but negatively correlated with audit delay. However, firms with female audit committee chairs
(WAUDCHR) are associated with lower fees, consistent with the supply side argument of audit
The correlations among audit fees, audit delay, and the rest of the control variables are
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consistent with prior research. For the sake of brevity, we do not discuss these correlations in
detail (untabulated). However, we check the variance inflation factor (VIF) in every regression
and find that the VIF is less than 10. Therefore, we believe that our analysis is not subject to
multicollinearity.
We examine the impact of gender and ethnicity of CEOs and audit committee members
on audit fees and audit delay using a multivariate regression analysis with two-way clustering
based on firms and years and robust standard errors. Since there are variations in audit fees and
audit delay across different industries and across different periods, we also control for Fama and
French 48 industries and years16. Table 5 reports the OLS regression results.
First, we find that firms with white women CEOs (WWCEO) pay about $1.06 million
higher in audit fees than firms with white male CEOs17. The coefficient of WWCEO is positive
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and statistically significant at the 0.01 level. We also find that firms with women ethnic minority
CEOs (WMCEO) and male ethnic minority CEOs (MMCEO) pay about $1.14 million and $1.09
million higher audit fees than firms with white male CEOs. The coefficients of WMCEO and
MMCEO are positive and significant at the 0.01 level. These results support our first set of
hypotheses (H1a and H1b), consistent with the demand side argument of audit fees. Our results
suggests that both female and ethnic minority CEOs demand higher audit effort and are willing
With respect to audit committees, we find that the percentage of ethnic minority audit
committee members (PCTMAUD) is positively associated with higher audit fees (significant at
the 0.01 level). This result is consistent with the demand side argument of audit pricing.
However, we do not find evidence that the percentage of female audit committee members
(PCTWAUD) is associated with audit fees. Our result supports H2b, but not H2a. Controlling
for female audit committee chairs (WAUDCHR) in the audit fee regression, we find that the
coefficient of WAUDCHR is negative and statistically significant, suggesting that female chairs
are associated with lower audit fees. This result is consistent with Ittonen et al. (2010),
In the audit delay analyses, we document that firms with white women CEOs (WWCEO)
have about one day lower audit delay than those with white male CEOs (significant at the 0.01
level)19. We do not find a similar result for women ethnic minority CEOs (WMCEO). Although
it is negative, the coefficient of WMCEO is not statistically significant. This weak result is
likely due to the fact that the percentage of firms with ethnic minority female CEOs is very
small. Similarly, we find that the presence of minority male CEOs (MMCEO) is not associated
with audit delay. In a separate regression (untabulated), we used two indicator variables for
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female CEOs (WCEO) and ethnic minority CEOs (MCEO) instead of using the three dummies
(WWCEO, WMCEO, and MMCEO). The coefficient of WCEO is negative and statistically
significant while that of MCEO is not significantly different from zero, suggesting that white
female CEOs drive the results for female CEOs. Overall, our results support H3a, but not H3b.
Female CEOs seem to be more sensitive to the social pressure to avoid audit delay than male
CEOs.
We find that a higher percentage of female audit committee members will reduce audit
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delay by about one day. In addition, we show that a higher percentage of ethnic minorities in
audit committees will reduce audit delay by about one day. These findings provide support to
our fourth set of hypotheses (H4a and H4b) that female and ethnic minority audit committee
Srinidhi et al. (2011) demonstrate that the probability of firms having a women CEO is
endogenous. We address this endogeneity issue by conducting the first stage probit (tobit)
regressions based on Srinidhi et al. (2011). We use probit regressions for examining factors that
influence the probability of having a white women CEO (PROB(WWCEO)), an ethnic minority
women CEO (PROB(WMCEO)) and an ethnic minority male CEO (PROB(MMCEO)). We use
tobit regressions to estimate the percentage of women (PCTWAUD) and ethnic minority
(PCTMAUD) in audit committees20. We present the results in Table 6. Examining the results of
the five regressions, we find that firm size (SIZE), firm age (FIRMAGE), average number of
outside directors (DIRECTORSHIP), and the percentage of female and ethnic minority
employees in a specific industry are positively associated with the probability of appointing
white female, minority female, and minority male CEOs and with the percentage of female and
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ethnic minority audit committee members. Overall, our first stage probit (tobit) results are
We estimate the inverse-Mills ratios from the first stage probit (tobit) regressions21 and
include the ratios (WWCEO, WMCEO, MMCEO, WWCEO, WMCEO) in the second
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stage regressions. Table 7 presents the second stage regression results for audit fees and audit
delay. The inverse-Mills ratios are statistically significant in all of the audit fee regressions and
most of the audit delay regressions, indicating the existence of a self-selection bias in our OLS
regressions. Controlling for the inverse-Mills ratios, we note that the results, both economic and
statistical significance, for the CEO gender and ethnicity as well as the audit committee gender
and ethnicity are similar to those of the OLS regressions. Thus, our conclusions remain robust.
The regression results in Tables 5 and 7 include the control variables for firm
characteristics that could affect the strength of the internal control environment, and thus, audit
fees and audit delay. The signs of the coefficients of the control variables are consistent with
prior research. COUNTWEAK (the number of material weaknesses reported), for example, is
associated with higher audit fees and longer audit delay, supporting the supply side argument of
audit pricing. The presence of reported material control weaknesses would require that the
auditor perform additional tests, leading to higher audit fees and longer audit delay.
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Despite our effort to control for the internal control environment in the regression
models, we have not completely ruled out the alternative explanation that firms with female or
ethnic minority CEOs may have, on average, a weaker internal control system than those with
male Caucasian CEOs. Therefore, our CEO variables (WWCEO, WMCEO, and MMCEO)
could capture the weak control system that requires the auditor to perform more audit services
and charge higher fees, rather than the demand for greater assurance. Similarly, audit
committees with higher percentage of minority directors (PCTMAUD) could be associated with
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a weaker control system, and thus, higher audit fees than audit committees with lower percentage
of minority directors. To rule out this alternative explanation, we run the regressions of internal
control weaknesses on the CEO and audit committee variables and other control variables. We
The results show that the coefficients of the CEO variables (WWCEO, WMCEO, and
MMCEO) are not statistically significant. CEO gender and ethnicity are not associated with the
presence and the number of material control weaknesses. Therefore, the results confirm our
main conclusion that firms with female and/or ethnic minority CEOs pay for higher fees because
of the greater demand for assurance, and not because of the weaker internal control system.
Shorter audit delay could result from a stronger internal control system (i.e., supply side)
or a clients demand for more efficient audit.22 Since the results in Table 8 rule out the internal
control explanation, we conclude that female CEOs reduce the likelihood of audit delay by
demanding for a more efficient audit. Taken together, our results in Tables 4 and 6 suggest that,
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compared to firms with male Caucasian CEOs, firms with female CEOs have higher audit fees
and shorter audit delay because they have preference for greater assurance (i.e., reliability of
financial reporting) and more timely audit reporting (i.e., timeliness of audit reports and
earnings).
Table 8 also reports that the percentages of female and ethnic minority directors on audit
committees (PCTWAUD and PCTMAUD) are not associated with internal control weaknesses.
Thus, our results confirm that the greater percentage of ethnic minority directors in an audit
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committee is associated with higher audit fees because of the greater demand for assurance,
rather than the weaker control environment. With respect to audit delay, our results confirm that
greater percentages of female and ethnic minority in an audit committee are associated with
Our main analyses use the percentages of female and ethnic minority audit committee
members. We also run both regressions of audit fees and audit delay using the percentage of
female directors and ethnic minority directors on corporate boards. Our results are consistent
with those of our main analyses with one exception. In the audit fee regression, the percentage
of female directors (PCTWBOD) is positively associated with audit fees, consistent with that of
Gul et al. (2008). The coefficient of PCTWBOD remains positive and significant after we
control for the presence of female audit committee chairs (WAUDCHR). Consistent with
Ittonen et al. (2010), the coefficient of WAUDCHR is negative and statistically significant.
Overall, we conclude that the seemingly conflicting results of Gul et al. (2008) and Ittonen et al.
(2010) are due to the use of different groups (corporate boards vs. audit committees).
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We perform several robustness checks. First, we use the dollar value of audit fees and
the number of days of audit delays instead of the natural log of audit fees and the natural log of
audit delay, respectively. The results are weaker when we use the dollar value of audit fees and
the number of days of audit delay due to the skewness of both variables. However, our
variables such as GINDEX (Gompers et al. 2003) and entrenchment index (Bebchuk et al. 2009).
Our results remain robust with the inclusion of these variables.23 Third, we re-examine our
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analyses by controlling for auditor tenure or the number of years that a firm is audited by the
current auditor. Our results are consistent with the main results.24 Fourth, in the regressions
using corporate board data, we check for a potential tokenism issue of appointing both female
and ethnic minority directors. We include only observations with three or more female or ethnic
minority board members. Our results remain robust. Fifth, we run our regression for the pre-
Sarbanes Oxley (2000 to 2002) and post-Sarbanes Oxley (2003-2010). We find that our results
are consistent for both periods. However, the results for pre-SOX are weaker because the pre-
SOX subsample has a significantly smaller sample size compared to the post-SOX subsample.
Since the Audit Analytics data starts in the year 2000, approximately 76.2 percent of our
observations are from the post SOX period. Finally, we run the fixed-effect panel data
Big 4 auditor and industry specialist) across gender/ethnicity groups. We do not find evidence
that firms with female or ethnic minority CEOs are more likely to hire Big 4 auditors and
auditors with industry specialization (Francis et al. 2005; Huang et al. 2007) than those with
white male CEOs. However, we find that firms with female or ethnic minority audit committee
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MAJ 1147_Final
members are more likely to hire Big 4 auditors and auditors with significant industry
specialization than firms with all white male audit committee members.
absolute value of discretionary accruals (ABSDA) across CEO and audit committee
gender/ethnicity groups. We do not find any differences between CEO gender/ethnicity groups
(i.e., female white vs. male white CEOs, female minority vs. male white minority CEOs, and
male minority vs. male white CEOs). However, we find that firms with female or ethnic
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minority audit committee members have significantly lower ABSDA, indicating better earnings
reporting quality, than firms with all white male audit committee members. Female or ethnic
minority audit committee members are associated with higher audit fees and shorter audit delay
because they have preference for greater assurance and financial reporting quality. Taken
together, our results provide further evidence to rule out the alternative explanation that firms
with female or ethnic minority CEOs and directors may have a weaker internal control system
The present study examines the impact of gender and ethnic diversity in corporate
leadership and boardrooms on audit fees and audit delay. In our setting, gender and ethnic
diversity are likely to capture differences in the level of risk tolerance, overconfidence, diligence,
and monitoring intensity. As a result, these individual differences are likely to influence
financial reporting decisions reflected in audit fees and audit delay. Using firm level data
between 2000 and 2010, we provide empirical evidence supporting our hypotheses that CEO and
director gender and ethnicity are determinants of audit fees and audit delay.
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Our study contributes to the growing stream of studies examining the role of diversity in
corporate leadership and boardrooms. We find that female CEOs, ethnic minority CEOs, and
ethnic minority directors (audit committee members), compared to male Caucasian CEOs and
directors (audit committee members), are associated with higher audit fees. This is consistent
with the demand side argument of audit pricing. The proportion of female audit committee
members is not associated with audit fees. However, audit committees with a female chair are
associated with lower audit fees, consistent with the supply side argument of audit pricing. Our
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results suggest that the gender and ethnicity of CEOs and directors could influence the demand
and supply forces of audit fees. With respect to audit delay, we find that female CEOs,
compared to male CEOs, are associated with shorter audit delay. We also find that audit
committees with greater percentages of female and ethnic minority directors are associated with
shorter delay.
Our study has several implications. First, gender and ethnic diversity in corporate
leadership and boardrooms could improve audit quality and the overall financial reporting
quality. Our results suggest that female and ethnic minority CEOs and ethnic minority audit
committee members demand greater assurance because they tend to be more concerned with
their reputational capital than male Caucasians. Demand for greater assurance, in turn, could
decrease the likelihood of accounting errors and irregularities. In this case, our results
complement prior studies documenting the positive impact of female leadership on accruals
quality (Barua et al. 2010) and the positive impact of gender-diverse boards on the likelihood of
financial restatements (Abbott et al. 2012). However, our results also suggest that the demand
for greater assurance beyond what is necessary to keep reporting risk to an acceptable level for
all shareholders, could create cost inefficiency. In this case, shareholders would bear the
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additional, unnecessary cost of audit services attributed to the need of CEOs and directors to
Second, female leadership and gender- and ethnic-diverse audit committees could
enhance the timeliness of financial and audit reporting. Our results suggest that female CEOs, as
well as female and minority directors, are more sensitive to capital and labor market pressures to
avoid audit delay. Having a female CEO and appointing female and minority directors on audit
committees will increase the likelihood that firms will issue financial reports more timely.
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We recognize that our study has limitations. We conclude that higher fees for firms with
female and ethnic minority CEOs and greater percentage of minority directors on audit
committees represent higher demand for more rigorous external audit services. We have ruled
out the alternative explanation that the higher audit fees are due to internal control weaknesses.
However, there could be other explanations for the higher fees. It is possible that female and
ethnic minority CEOs and audit committees with greater proportion of minority directors are
facing price discrimination or have lower ability to negotiate with their auditors. Since we do
not have direct measures for the existence of price discrimination, as well as CEO and director
This study sought to extend the stream of research on leadership and board diversity by
examining the role of gender and ethnic diversity on audit fees and audit delay. Future research
investigating how diversity affects other types of managerial and board decisions is warranted
and would provide further insight as to how individual attributes influence firm value.
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Notes
1. Using a sample of corporate boards, Gul et al. (2008) documented that boards with female
directors are associated with higher audit fees. In contrast, using a sample of audit
committees, Ittonen et al. (2010) documented that firms with female audit committee chairs
have lower audit fees.
3. In addition, female directors are also more diligent and have preference for higher level of
monitoring intensity than male directors (Adams and Ferreira 2009; Gul et al. 2011; Abbott
et al. 2012).
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5. Hillman et al. (2002) find that greater percentage of female and ethnic minority directors
hold advanced degrees than that of white male directors. Their results suggest that females
and ethnic minorities face a glass ceiling in corporate America. Kumar (2010) find that
female analysts issue more accurate forecasts, even when they are less experienced,
suggesting that female analysts have superior abilities. He argues that the result is due to a
self-selection process; female analysts have to show more competence to compete in a male-
dominated industry.
6. Empirical studies on the relationship between female and ethnic minority directors and firm
performance showed mixed results, documenting either null or positive results (Erhardt et al.
2003; Miller and Triana 2009; Carter et al. 2003; Carter et al. 2010).
7. There are stricter criminal penalties for wrongdoing associated with financial reporting.
8. While we argue that CEOs would naturally desire audit quality due to penalties for
misreporting, CEOs who want to conceal accounting irregularities and fraudulent activities
may prefer low quality audits.
9. The work group diversity literature has examined two components of diversity, surface level
and deep level diversity. Surface level diversity refers to observable attributes, such as
gender, ethnicity and age. Harrison et al. (1998) find that if surface level diversity creates a
negative effect, time will moderate this effect because over a period of time, team members
will become more knowledgeable about one another and bypass any surface level
differences. Similarly, an audit committee setting fosters a long enough time period to
remediate any negative effect that may stem from surface level diversity.
10. Srinivasan (2005) suggests that labor market penalties (i.e., director departure) provide the
main consequences for directors for failing to perform their monitoring duties since penalties
from lawsuits and SEC actions are limited.
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11. Tsui et al. (2011) is an exception. Using a sample of Hong Kong companies, Tsui et al.
(2011) documented that boards with CEO and board chairman served by different individuals
are associated with lower audit fees.
12. In addition, Goh (2009) found that both committee independence and expertise are associated
with timely remediation of internal control deficiencies.
13. Existing studies have also documented that audit delay decreases with the implementation of
internal control monitoring technology (Masli et al. 2010) and the adoption of compensation
recovery (clawback) provisions (Chan et al. 2012).
14. About 9.2 percent of firms have female CEOs and 8 percent have ethnic minority (female
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and male) CEOs. Within the ethnic minority group, 5 percent of CEOs are African
American, 3 percent Hispanic, and 1 percent Asian. Only one firm has a Native American
CEO.
15. For sensitivity analyses, we run regressions of audit fee (LAFEE) and audit delay
(LADELAY) using exactly the same set of independent variables and our main conclusions
remain unchanged.
16. We also conducted sensitivity test by controlling for high-tech and financial industries
(Ettredge et al. 2006), and our results remain robust with high-tech and financial industries
control variables.
17. Since the dependent variable is the natural logarithmic of audit fee (stated in million dollars),
slope coefficient of 0.06 is equal to 1.06 (exponential of 0.06). The rest of slope coefficients
for audit fee regression are interpreted in the same method.
18. We also examine the other group comparisons by comparing the related coefficients: (1)
WWCEO vs. WMCEO; (2) WWCEO vs. MMCEO; and (3) WMCEO vs. MMCEO. We find
that the coefficient of WMCEO (woman minority CEO) is significantly larger than that of
WWCEO (white woman CEO), statistically significant at the 10 percent level. However, we
do not observe any significant difference in the other two group comparisons (i.e., WWCEO
vs. MMCEO, WMCEO vs. MMCEO). Our results do not suggest a significant interaction
between CEO gender and CEO ethnicity.
19. The dependent variable is the natural logarithmic of audit delay (stated in days), slope
coefficient of -0.05 is equal to one day (exponential of 0.05). The rest of slope coefficients
for audit delay regression are interpreted in the same method. While a one day reduction in
delay seems to be economically insignificant, it is meaningful because more than 26 percent
of our sample firms have audit delay more than 60 days. After the passage of Section 404 of
SOX, the audit delay is limited to a maximum of 60 days for large accelerated filers with
market value of more than $700 million and a maximum of 75 days for accelerated filers
with market value between $75 million and $700 million. We run the regression analysis
separately by market value and find that the coefficient of WWCEO is negative and
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statistically significant for only the sample of firms with more than $700 million in market
value of equity.
20. We adapted the first stage regression model from Srinidhi et al. (2011). We replace the
percentage of female employees in each two-digit SIC industry category with the percentage
of white female employment to total employment (INDWFPCT), ethnic minority female
employees to total employees (INDWMPCT), and ethnic minority male employees to total
employees (INDMMPCT) for the probit models of white female CEOs, ethnic minority
female CEOs, and ethnic minority male CEOs, respectively. For the tobit regressions, we
use the percentage of female employees (INDWPCT) and ethnic minority employees
(INDMPCT). The percentage data are collected from the Bureau of Labor and Statistics
(BLS) Current Population Survey, available at http://www.bls.gov/cps/tables.htm. We
conduct extrapolations for the years that are not available in BLS.
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21. Inverse-Mills ratio () is calculated from the normal density of predicted values of the
dependent variable divided by the cumulative probability of the predicted values of the
dependent variable (Greene 2011).
22. Another explanation for the shorter audit delay is that the client demands for low quality
audit (i.e., leaving unaddressed problems). This explanation is unlikely to explain our audit
delay result because we find that female CEOs are associated with higher audit fees. In
addition, this explanation will require that the auditor agrees to accept a higher audit risk for
not detecting errors and irregularities.
23. Our untabulated results indicate that both GINDEX and entrenchment index do not
significantly affect audit fee and audit delay.
24. We find that longer auditor tenure is associated with lower audit fees.
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Table 1
Variable Definitions
Expected Expected
Sign for Sign for
Variable LAFEE LADELAY Definition
Dependent Variables:
LAFEE + Natural log of audit fee (Raghunandan and Rama, 2006)
LADELAY Natural log of the number of calendar days from fiscal yearend to the date of auditor's
report (Ettredge et al., 2006)
Independent Variables:
WWCEO ? - Dummy variable equals one if CEO is a white female
Dummy variable equals one if CEO is an ethnic minority (Black, Hispanic, or Asian)
WMCEO ? -
female
MMCEO ? - Dummy variable equals one if CEO is an ethnic minority (Black, Hispanic, or Asian) male
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EXT + Dummy variable equals one if the firm reported extraordinary items (Ettredge et al., 2006)
Dummy variable equals one if the firm received other than a standard unqualified audit
AUDOPIN +
opinion (Ettredge et al., 2006)
BODSIZE + ? Total number of board members (Bliss, 2011)
PCTOD + ? Ratio of outside board members to board size (Carcello et al., 2002)
CEOCHAIR + ? Dummy variable equals one if the CEO is also the chair of the board (Bliss, 2011)
BODNMEET + ? Number of board meetings during the year (Carcello et al., 2002)
CEOTENURE ? ? Number of years the current CEO has served as a CEO of the firm
CEOTURN + ? Dummy variable equals one if there is a CEO turnover during the year
? Average number of years the board members have served as directors of the firm (Adams
BODTENURE ?
and Ferreira, 2009)
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Table 2
Sample statistics
Variable Mean Stdev. 10% 25% 50% 75% 90%
AUDIT FEE
($ million) 3.024 5.802 0.343 0.663 1.337 3.100 6.600
AUDITDELAY
(days) 54.888 29.831 29 44 56 62 73
WWCEO 0.072 0.259 0 0 0 0 0
WMCEO 0.020 0.142 0 0 0 0 0
MMCEO 0.060 0.237 0 0 0 0 0
PCTWAUD 0.118 0.161 0 0 0 0.2 0.333
PCTMAUD 0.054 0.119 0 0 0 0 0.25
PCTAUDFIN 0.005 0.041 0 0 0 0 0
PCTAUDCONS 0.003 0.035 0 0 0 0 0
PCTAUDLEGL 0.007 0.045 0 0 0 0 0
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Table 3
Sample distribution across Fama-French 48 industries
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Table 4
Correlation Coefficients
No 1 2 3 4 5 6 7 8 9 10 11 12 13
1 LAFEE 1
2 LADELAY 0.202* 1
3 WWCEO 0.012* -0.065* 1
4 WMCEO 0.131* -0.043* -0.021* 1
5 MMCEO 0.117* -0.052* -0.035* -0.019* 1
6 PCTWAUD 0.170 -0.035* 0.106* 0.085* 0.040* 1
7 PCTMAUD 0.259* -0.046* 0.016 0.153* 0.169* 0.174* 1
8 PCTAUDFIN -0.086 -0.049 -0.008 -0.003 -0.008 -0.007 -0.012 1
9 PCTAUDCONS 0.062* -0.050 -0.015 -0.013 -0.017* -0.021 -0.030* -0.002 1
10 PCTAUDLEGL -0.097 -0.129* -0.020* -0.011 -0.010 -0.028* -0.008 0.029* 0.019 1
11 PCTAUDEXEC -0.001* -0.031 0.103* 0.103* 0.091* 0.026* 0.044* 0.046* -0.015 -0.019 1
12 WAUDCHR -0.078* -0.018 0.018 0.035* 0.021 0.239* 0.092* -0.015 -0.018 -0.010 0.013 1
13 MAUDCHR 0.040 -0.003 -0.004 0.034* 0.009 0.024* 0.099* -0.006 -0.005 -0.010 0.009 0.041* 1
14 DCEOFINEXP -0.090* -0.004* 0.025* 0.045* 0.021* 0.018 0.017 0.124* -0.017 -0.014 -0.042* 0.005 0.005
See Table 1 for variable definitions.
* indicates significant at 1% or less.
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Table 5
OLS Regression of Audit Fees and Audit Delay on Woman and Minority CEOs and Audit
Committee Members
Expected Expected
Signs LAFEE LAFEE Signs LADELAY LADELAY
WWCEO ? 0.0660 0.0646 - -0.0498 -0.0494
(3.44)*** (3.37)*** (3.70)*** (3.68)***
WMCEO ? 0.1324 0.1315 - -0.0087 -0.0080
(3.80)*** (3.78)*** (0.38) (0.35)
MMCEO ? 0.0875 0.0879 - 0.0073 0.0073
(4.23)*** (4.25)*** (0.58) (0.57)
PCTWAUD ? -0.0046 0.0308 ? -0.0369 -0.0350
(0.13) (0.85) (3.71)*** (3.42)***
PCTMAUD ? 0.1305 0.1294 ? -0.0247 -0.0242
(2.94)*** (2.91)*** (1.95)* (1.92)*
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Table 6
First Stage Probit and Tobit Regressions of Woman and Ethnic Minority CEO and Percentage of
Woman and Ethnic Minority Directors on Audit Committees
PROB PROB PROB TOBIT TOBIT
(WWCEO) (WMCEO) (MMCEO) (PCTWAUD) (PCTMAUD)
ROA -0.3474 -0.0685 -0.1569 0.0184 0.0217
(2.21)** (0.17) (1.46) (0.65) (0.45)
SIZE 0.0305 0.1633 0.1384 0.0275 0.0777
(2.12)** (7.92)*** (9.44)*** (9.86)*** (19.00)***
FIRMAGE 0.0056 0.0070 0.0022 0.0016 0.0017
(5.59)*** (4.84)*** (2.23)** (8.16)*** (6.27)***
SALEGRW -0.0145 0.1637 0.0036 -0.0411 -0.1144
(0.30) (1.99)** (0.07) (4.05)*** (5.95)***
DIRECTORSHIP 0.0546 0.1025 0.0330 0.0232 0.0288
(6.27)*** (7.70)*** (3.57)*** (12.33)*** (10.78)***
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Table 7
Second Stage Regressions of Audit Fees and Audit Delay on Woman and Minority CEOs and Audit
Committee Members
Expected Expected
Signs LAFEE LAFEE Signs LADELAY LADELAY
WWCEO ? 0.0611 0.0599 - -0.0482 -0.0479
(3.20)*** (3.14)*** (3.62)*** (3.60)***
WMCEO ? 0.1278 0.1270 - -0.0094 -0.0087
(3.70)*** (3.68)*** (0.41) (0.38)
MMCEO ? 0.0869 0.0873 - 0.0062 0.0061
(4.22)*** (4.24)*** (0.49) (0.48)
PCTWAUD ? 0.0017 0.0345 ? -0.0302 -0.0281
(0.05) (0.95) (2.99)*** (2.72)***
PCTMAUD ? 0.1060 0.1048 ? -0.0267 -0.0262
(2.41)** (2.37)** (2.12)** (2.08)**
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Table 8
Second Stage Regressions of Internal Control Weakness on Woman and Minority CEOs and Audit
Committee Members
DWEAK COUNTWEAK
WWCEO 0.0010 0.0380
(0.17) (1.22)
WMCEO 0.0065 -0.0016
(0.65) (0.09)
MMCEO 0.0002 -0.0050
(0.04) (0.43)
PCTWAUD 0.0112 0.0079
(1.08) (0.31)
PCTMAUD 0.0034 -0.0168
(0.26) (0.48)
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(0.85) (0.75)
CEOTENURE 0.0003 0.0014
(1.44) (2.08)**
CEOTURN 0.0272 0.1303
(1.62) (1.21)
BODTENURE -0.0004 -0.0006
(0.75) (0.47)
WWCEO 0.0790 0.1590
(1.71)* (1.97)**
WMCEO 0.0274 -0.0041
(0.44) (0.12)
C -0.0301 -0.0630
(0.35) (0.64)
PCTWAUD -0.3337 -0.4179
(2.39)** (1.17)
PCTMAUD 0.0667 0.0591
(0.77) (0.29)
Observations 12153 12153
R-squared 0.0657 0.0404
Intercept Yes Yes
DWEAK equal to one if the firm has internal weakness (or COUNTWEAK is greater than zero). COUNTWEAK is the number
of reported internal control weaknesses. The first regression DWEAK is a probit regression. See Table 1 for the remaining
variable definitions. The Fama-French 48 industry dummies and year dummies are included in the regression but are not
reported. Robust absolute value of t-statistics with both firm and year clustering are in parentheses. *, **, and *** significant at
10%, 5%, and 1%.
Biographical Details
Dr. Maretno Agus Augus Harjoto received his PhD in economics from the University of
Kentucky in 2002. Dr. Harjoto received the 2009 Moskowitz Prize Award from the Center for
Responsible Business, University of California Berkeley for his research on the Economics and
Politics of Corporate Social Performance. He also received the 2010 and 2012 Rothschild
Research award and the 2011-2012 Julian Virtue Professorship from the Graziadio School of
Business and Management. He was awarded the Howard A. White category 2 teaching award in
2011. He has published over twenty refereed research papers in both academic and practitioner
journals such as Financial Management, Journal of Financial Research, Journal of Corporate
Finance, Financial Review, Journal of Business Ethics, Business Ethics: The European Review,
Asia-Pacific Journal of Financial Studies, Journal of Financial Education, and Commercial
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Lending Review. His work on whisper number received media coverage by Business
Week and CFO Online magazines.
Indrarini (Rini) Laksmana received her Ph.D. from Georgia State University in 2004. Her
research interests focus on examining accounting-related managerial decisions and their
relationship with executive compensation, corporate governance, and earnings quality. Her
research has been published in Contemporary Accounting Research, Journal of Accounting and
Public Policy, Journal of Business Ethics, Advances in Accounting, and Review of Quantitative
Finance and Accounting, among others. She received the Best Paper Award from the Ohio
Region of the American Accounting Association in 2005. She is a twice recipient of the Beta
Alpha Psi and Accounting Association's Professor of the Year Award, in 2009 and 2012. She is
the 2013 recipient of the College of Business Administration's Paul L. Pfeiffer Professional and
Creative Teaching Award. She worked in public accounting before pursuing her graduate
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Acknowledgements
We are grateful for the helpful comments and suggestions of two anonymous referees. Harjoto
acknowledges Julian Virtue Professorship endowment and Rothschild awards for financial support and
release time for this research. Lee acknowledges Julian Virtue Professorship endowment for financial
support and release time for this research.
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