Audit fees, board ethnicity and board independence: evidence from South Africa

Abstract

Purpose The purpose of this paper is to examine the relationship between ethnic diversity on corporate boards and audit fees in the context of South Africa. Additionally, this paper investigates how the interaction between board ethnicity and board independence affects audit fees. Design/methodology/approach This study uses a quantitative research method with a panel data analysis to test proposed hypotheses. This study’s sample consist of listed firms on the Johannesburg Stock Exchange (JSE) from 2003 to 2018. Findings This study finds that firms with more Black directors on corporate board have higher audit fees. It also shows that the positive relation between board independence and audit fees is more pronounced for firms with greater ethnic diversity on corporate boards. Further, this study finds that the presence of Black directors on corporate board can increase board effectiveness. Lastly, firms with more Black directors on corporate board tend to be audited by Big N auditors. The findings of this study illustrate the implication of an equity narrative to board diversity for organisational outcome. Research limitations/implications The results reported in this paper have both practical and policy implications regarding the presence of ethnic diversity on corporate boards. The findings also suggest that there is a need to establish an appropriate balance of ethnic diversity on corporate boards as part of regulatory reform. Regulators should be aware of the positive impacts of the requirement for board diversity on corporate boards. Originality/value To the best of the authors’ knowledge, this is the first study to examine whether the presence of Black directors on corporate boards affects audit fees. It also investigates the interaction effects between the presence of Black directors on the board and board independence.