Corporate Governance Characteristics and External Audit Fees: A Study of Large Public Companies in Israel

Abstract

The purpose of this study is to examine the association between corporate governance characteristics and external audit fees in large public companies in Israel. The results show that board independence (proportion of external directors on the board of directors) and audit committee diligence (number of meetings) are positively and significantly associated with audit fees. The results are consistent with the demand-based perspective of audit services, wherein firms with strong corporate governance characteristics demand additional assurance from the auditors and higher audit quality, resulting in higher external audit fees. The findings of this initial study in Israel offer support for the new proposal of Amendment 10 to the Israeli Companies Law that calls for general adoption of strict principles of corporate governance, including increasing the number of independent directors on the board of directors and expanding the roles of the board's audit committee. [PUBLICATION ABSTRACT]