Lead independent director reputation incentives and audit fees

Abstract

Although prior research has recently begun to examine the effects of independent director reputation incentives and the benefits of having a lead independent director, no study has considered the combined impact: the reputation incentives of lead independent directors. This study integrates these emerging streams of research to investigate whether the reputation incentives of lead independent directors affect audit fees. We find that firms with a lead independent director who has relatively low reputation incentives are associated with audit fees that are 4.39% higher than firms with a lead independent director who has neutral reputation incentives, consistent with auditors viewing these firms as riskier. We also find that this association is driven by auditors who are not industry specialists. Our results continue to hold when using an entropy balancing approach and when conducting other robustness tests.