The Impact of Demographic Characteristics of CEOS and Directors on Audit Fees and Audit Delay

This study examines the impact of gender and ethnicity of CEO and audit committee directors on audit fees and audit delay in the U.S. firms. Audit related corporate governance literature has extensively examined the determinants of audit fees and audit delay by focusing on board characteristics, specifically board independence, diligence, and expertise. We provide empirical evidence that gender and ethnicity diversity in corporate leadership and boardrooms influence a firm's audit fees and audit delay. This study finds that firms with female and ethnic minority CEOs pay significantly higher audit fees than those with male Caucasian CEOs. We also find that firms with a higher percentage of ethnic minority directors on their audit committee pay significantly higher audit fees. Further, we find that firms with female CEOs have shorter audit delay than firms with male CEOs and firms with a higher percentage of female and ethnic minority directors on their audit committee are associated with shorter audit delay. Our results indicate that female CEOs and both female and ethnic minority directors are sensitive to the market pressure to avoid audit delay. Our results suggest that gender and ethnic diversity could improve audit quality and the firms' overall financial reporting quality. This study provides insights to regulators and policy makers interested in increasing diversity within a firm's board and top executives. Recently, the U.S. Securities and Exchange Commission (SEC) and the European Commission have been pressing publicly traded companies to improve diversity amongst their directors. This study provides evidence and perspective on how diversity can enhance financial reporting quality measured by audit fees and audit delay