CEOs N Audit 2015

Managerial Auditing Journal
The impact of demographic characteristics of CEOs and directors on audit fees and audit delay
Maretno Agus Harjoto Indrarini Laksmana Robert Lee
Article information:
To cite this document:
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. -
Permanent link to this document:
http://dx.doi.org/10.1108/MAJ-01-2015-1147
Downloaded on: 11 September 2015, At: 07:43 (PT)
References: this document contains references to 0 other documents.
To copy this document: permissions@emeraldinsight.com
The fulltext of this document has been downloaded 28 times since 2015*
Users who downloaded this article also downloaded:
SAEED RABEA BAATWAH, Zalailah Salleh, Norsiah Ahmad, (2015),"CEO characteristics and audit report timeliness: Do
Downloaded by Central Michigan University At 07:43 11 September 2015 (PT)
CEO tenure and financial expertise matter?", Managerial Auditing Journal, Vol. 30 Iss 8/9 pp. -
Jill Rubery, (2015),"Change at work: feminisation, flexibilisation, fragmentation and financialisation", Employee Relations,
Vol. 37 Iss 6 pp. -
Barbara Crossouard, (2013),"Conceptualising doctoral researcher training through Bernstein's theoretical frameworks",
International Journal for Researcher Development, Vol. 4 Iss 2 pp. 72-85 http://dx.doi.org/10.1108/IJRD-05-2013-0007
Access to this document was granted through an Emerald subscription provided by emerald-srm:123705 []
For Authors
If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service
information about how to choose which publication to write for and submission guidelines are available for all. Please
visit www.emeraldinsight.com/authors for more information.
About Emerald www.emeraldinsight.com
Emerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of
more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online
products and additional customer resources and services.
Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication
Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation.
*Related content and download information correct at time of download.

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

MAJ 1147_Final
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
(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
audit committee (board) members influence these audit outcomes.
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;
Abbott et al. 2012).
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
1
MAJ 1147_Final
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
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
audit reporting (i.e., timeliness of audit reports and earnings).
Second, existing studies examining determinants of audit fees and audit delay have
focused on firm-level characteristics and board characteristics, particularly independence,
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).
2
MAJ 1147_Final
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.
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,
as reflected in audit fees and audit delay.
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
3
MAJ 1147_Final
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
for assurance would result in higher audit fees, suggesting a positive relation between audit fees
and female and ethnic minority CEO and directors.
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
with audit delay.
4
MAJ 1147_Final
We present two competing hypotheses with respect to gender (ethnicity) of audit
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
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
are associated with shorter audit delay.
Our study contributes to the stream of research on audit fees, audit delay and corporate
governance, by showing that individual characteristics of CEOs and directors, specifically
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
intensity, are likely to affect financial reporting decisions.
5
MAJ 1147_Final
We contribute to a growing line of research examining the role of diversity in corporate
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
board oversight of management; we document that ethnic diversity in audit committees is
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
6
MAJ 1147_Final
statements. Audit delay measures the timeliness of audited financial statements and reported
earnings.4
The remainder of this paper is organized as follows. Section 2 summarizes relevant
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.
2. Literature Review and Hypotheses
2.1 Prior Studies on Gender and Ethnic Differences
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
chance of survival than those with male CEOs.
7
MAJ 1147_Final
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.
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
8
MAJ 1147_Final
assume individuals from different ethnic backgrounds have different knowledge bases, different
sets of experiences, and different perspectives on society. Therefore, an increase in ethnic
diversity would result in positive outcomes such as increased information, enhanced problem
solving ability, constructive conflict and debate, increased creativity, higher quality decision, and
increased understanding of different ethnicity or cultures (Shore et al. 2009).6
2.2 Audit Fee Hypothesis Development

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
members) that influence the level of these audit services.
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
9
MAJ 1147_Final
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
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
10
MAJ 1147_Final
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
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
experienced auditors), leading to higher audit fees.
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
11
MAJ 1147_Final
costs to build stronger internal control systems. Given the two competing hypotheses, we
present the following non-directional hypotheses:
H1a: Ceteris paribus, CEO gender is associated with audit fees.
H1b: Ceteris paribus, CEO ethnicity is associated with audit fees.
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
depending on the background of individuals serving on them. As such, greater representation of

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
of group diversity outweighs the negative effect9.
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
accounting restatements (Srinivasan 2005).10
12
MAJ 1147_Final
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
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
associated with higher audit fees.
Second, audit committees could obtain greater assurance by exerting pressure on
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
13
MAJ 1147_Final
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.
2012), resulting in lower audit fees.
Given the competing arguments, our second set of hypotheses is non-directional:
H2a: Ceteris paribus, the proportion of female audit committee members is associated with
audit fees.
H2b: Ceteris paribus, the proportion of ethnic minority audit committee members is
associated with audit fees.
2.3 Audit Delay Hypothesis Development
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
(Bronson et al. 2011).13
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
14
MAJ 1147_Final
announcement of earnings is associated with lower abnormal returns than early
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
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.
Our third set of hypotheses in an alternative form is as follows.
H3a: Ceteris paribus, the presence of a female CEO is negatively associated with audit
delay.
15
MAJ 1147_Final
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
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
presence of such directors is negatively associated with audit delay.
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.
16
MAJ 1147_Final
3. Methodology and Results
3.1 Sample Selection and Descriptive Statistics
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
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
[Insert Table 1 here]
17
MAJ 1147_Final
The average percentages of females and ethnic minorities in audit committees
(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
our sample firms have CEOs with financial expertise (DCEOFINEXP).

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,
RESTRUCT, BANKRUPTCY, and ABSDA), the presence of material control weaknesses
(COUNTWEAK), restatements (RESTATE), audit opinion (GCONCERN), auditor type (BIG4),
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
18
MAJ 1147_Final
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)
as audit fees are associated with audit delay.15
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
Computers, Measuring and Control Equipment, Communication, Restaurants, Hotels, and

Motels, and Real Estate. Table 3 shows that there are variations of audit fees and audit delay
across 48 different industries.
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,
19
MAJ 1147_Final
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
pricing and the result of Ittonen et al. (2010).
The correlations among audit fees, audit delay, and the rest of the control variables are
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.
3.2 Multivariate Regression Results
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
20
MAJ 1147_Final
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
to pay for higher audit fees.18

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),
providing support for the supply side argument.
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
21
MAJ 1147_Final
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
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
members are associated with shorter audit delay.
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
22
MAJ 1147_Final
ethnic minority audit committee members. Overall, our first stage probit (tobit) results are
consistent with Srinidhi et al. (2011).
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
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.
23
MAJ 1147_Final
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
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
present the results in Table 8.
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,
24
MAJ 1147_Final
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
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
shorter delay through the use of more efficient audit procedures.
3.3. Additional Analyses
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).
25
MAJ 1147_Final
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
conclusions remain unchanged. Second, we include additional corporate governance control
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
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
regressions across firms-years and the results remain unchanged.
We perform several analyses to examine the differences in auditor characteristics (i.e.,
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
26
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.
We also perform analysis to examine differences in earnings quality, measured by the
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
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
than those with male Caucasian CEOs and directors.
4. Conclusion, Implications and Limitations
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.
27
MAJ 1147_Final
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
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
28
MAJ 1147_Final
additional, unnecessary cost of audit services attributed to the need of CEOs and directors to
protect their reputational capital.
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.
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
negotiation skills, we could not rule out these explanations.
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.
29
MAJ 1147_Final
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.
2. See the speech by SEC commissioner on board diversity at

www.sec.gov/news/speech/2010/spch110410laa.htm
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).
4. Statement of Financial Accounting Concepts (SFAC) No. 2 discusses relevance and

reliability as the two primary qualities that make accounting information useful for decision
making. Timeliness is an important characteristic of relevant information.
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.
30
MAJ 1147_Final
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
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
31
MAJ 1147_Final
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.
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.
32
MAJ 1147_Final
References
Abbott, L. J., Parker, S., Peters, G.F. and Raghunandan, K. (2003), An empirical investigation
of audit fees, nonaudit fees, and audit committees, Contemporary Accounting Research,
Vol. 20, pp. 215-234.
Abbott, L.J., Parker, S. and Presley, T.J. (2012), Female board presence and the likelihood of
financial restatement, Accounting Horizons, Vol. 26, pp. 607-629.
Adams, R. B. and Ferreira, D. (2009), Women in the boardroom and their impact on
governance and performance, Journal of Financial Economics, Vol. 94, pp. 291-309.
Alon, S. and Haberfeld, Y. (2007), Labor force attachment and the evolving wage gap between
white, black, and Hispanic young women, Work and Occupations, Vol. 34. Pp.369-398.
Banker, R., Darrough, M., Huang, R. and Plehn-Dujowich, J. (2013), The relation between
CEO compensation and past performance, The Accounting Review, Vol. 88, pp. 1-30.
Barua, A., Davidson, L.F., Rama, D.V. and Thiruvadi, S. (2010), CFO gender and accruals
quality, Accounting Horizons, Vol. 24, pp. 25-39.
Bebchuk, L., Cohen, A. and Ferrell, A. (2009), What matters in corporate governance? Review of
Financial Studies, Vol. 22, pp. 783-827.
Bilimoria, D. and Piderit, S. (1994), Board committee membership: Effects of sex-biased,

Academy of Management Journal, Vol. 37, pp.1453-1477.
Bliss, M.A. (2011), Does CEO duality constrain board independence? Some evidence from
audit pricing, Accounting and Finance, Vol. 51, pp. 361-380.
Bronson, S.N., Hogan, C.E., Johnson, M.F. and Ramesh, K. (2011), The unintended
consequences of PCAOB auditing standards Nos. 2 and 3 on the reliability of preliminary
earnings releases, Journal of Accounting and Economics, Vol. 51, pp. 95-114.
Cao, Y., Myers, L. and Omer, T. (2012), Company reputation and financial reporting quality,
Contemporary Accounting Research, Vol. 29, pp. 956-990.
Carcello, J., Hermanson, D.R., Neal, T.Y. and Riley Jr., R.A. (2002), Board characteristics and
audit fees, Contemporary Accounting Research, Vol. 19, pp. 365-384.
Carter, D.A., Simkins, B.J. and Simpson, W.G. (2003), Corporate governance, board diversity,
and firm value, Financial Review, Vol. 38, pp. 33-53.
Carter, D.A., DSouza, F., Simkins, B.J. and Simpson, W.G. (2010), The gender and ethnic
diversity of US boards and board committees and firm financial performance, Corporate
Governance: An International Review, Vol. 18, pp. 396-414
33
MAJ 1147_Final
Chambers. A. and Penman, S. (1984), Timeliness of reporting and the stock price reaction to
earnings announcements, Journal of Accounting Research, Vol. 22, pp. 21-47.
Chan, L.H., Chen, K.C.W., Chen, T. and Yu, Y. (2012), The effect of firm-initiated clawback
provisions on earnings quality and auditor behavior, Journal of Accounting and
Economics, Vol. 54, pp. 180-196.
Cheng, C. (1997), Are Asian American employees a model minority or just a minority? The
Journal of Applied Behavioral Science, Vol. 33, pp.277-290.
Cox, T., Lobel, S. and McLeod, P. (1991), Effects of group cultural differences on cooperative
and competitive behavior on a group task, Academy of Management Journal, Vol. 34,
pp. 827-847.
Cox, T. (1993), Cultural diversity in organizations: Theory, Research and Practice. San
Francisco: Berrett-Koehler Publishers.
Desai, H., Hogan, C. and Wilkens, M. (2006), The reputational penalty for aggressive
accounting: Earnings restatements and management turnover, The Accounting Review,
Vol. 81, pp. 83-112.
Erhardt, N., Werbel, J. D. and Shrader, B. (2003), Board of director diversity and firm financial
Performance, Corporate Governance: An International Review, Vol. 11, pp. 102-111.
Ettredge, M. L., Li and Scholz, S. (2006), Audit fee and auditor dismissals in the Sarbanes-
Oxley era, Accounting Horizons, Vol. 21, pp. 371-386.
Faccio, M., Marchica, M. and Mura, R. (2012), CEO gender, corporate risk-taking, and the
efficiency of capital allocation, Working paper (Purdue University), March 14, 2012.
Fama, E. and French, K. (1997), Industry costs of equity, Journal of Financial Economics,
Vol. 43, pp. 153-193.
Fama, E. and Jensen, M. (1983), Separation of ownership and control, Journal of Law and
Economics, Vol. 26, pp. 301-325.
Farrell, K. and Whidbee, D. (2000), The consequences of forced CEO succession for outside
Directors, The Journal of Business, Vol. 73, pp. 597-627.
Fee, C. and Hadlock, C. (2004), Management turnover across hierarchy, Journal of Accounting
and Economics, Vol. 37, pp. 3-38.
Feng, M., Li, C. and McVay, S. (2009), Internal control and management guidance, Journal of
Accounting and Economics, Vol. 48, pp. 190-209.
34
MAJ 1147_Final
Finkelstein, S., Hambrick, D. and A. Cannella. (2009), Strategic Leadership: Top executives
and their effects on Organizations, New York: Oxford University Press.
Finucane, M. L., Slovic, P., Mertz, C.K., Flynn, J. and Satterfield, T.A. (2000), Gender, race,
and perceived risk: the white male' effect, Health, Risk & Society, Vol. 2, pp. 159-172.
Flynn, J., Slovic, P. and Mertz, C.K. (1994). Gender, race, and perception of environmental
health risks. Risk Analysis, Vol. 14, pp. 1101-1108.
Francis, J. R., Reichelt, K. and Wang, D. (2005). The pricing of national and city-specific
reputations for industry expertise in the U.S. audit market. The Accounting Review, Vol.
80, pp. 113136.
Gilson, S. (1990), Bankruptcy, boards, banks and blockholders: Evidence on changes in corporate
ownership and control when firms default, Journal of Financial Economics, Vol. 27, pp.
355-387.
Givoly, D. and Palmon, D. (1982), Timeliness of annual earnings announcements: Some empirical
Evidence, The Accounting Review, Vol. 57, pp. 486-508.
Goh, B. (2009), Audit committees, boards of directors, and remediation of material weaknesses in
internal control, Contemporary Accounting Research, Vol. 26, pp. 549-579.
Goodwin-Stewart, J. and Kent, P. (2006), Relation between external audit fees, audit committee
characteristics and internal audit, Accounting and Finance, Vol. 46, pp. 387-404.
Gompers, P., Ishii, J. and Metrick, A. (2003), Corporate governance and equity prices, Quarterly
Journal of Economics, Vol. 118, pp. 107-155.
Greene, W. (2011), Econometrics Analysis. 7th Edition. New York: Prentice Hall.
Gul, F.A., Srinidhi, B. and Ng, A.C. (2011), Does board gender diversity improve
informativeness of stock prices? Journal of Accounting and Economics, Vol. 51, pp.
314-338.
Gul, F.A., Srinidhi, B. and Tsui, J. (2008), Board diversity and the demand for higher audit
Effort, Working Paper (The Hong Kong Polytechnic University), February 2008.
Harford, J. (2003), Takeover bids and target directors incentives: The impact of a bid on
directors wealth and board seats, Journal of Financial Economics, Vol. 69, pp. 51-83.
Harrison, D., Price, K. and Bell, M. (1998), Beyond relational demography: Time and the
effects of surface-and deep-level diversity on work group cohesion, Academy of
Management Journal, Vol. 41, pp. 96-107.
Hay, D.C., Knechel, W.R. and Wong, N. (2006), Audit fee: A meta-analysis of the effect of
35
MAJ 1147_Final
supply and demand attributes, Contemporary Accounting Research, Vol. 23, pp. 141-
191.
Hillman, A., Cannella Jr., A. and Harris, I. (2002), Women and racial minorities in the
boardroom: How do directors differ? Journal of Management, Vol. 28, pp. 747-763.
Huang, J. and Kisgen, D.J. (2012), Gender and corporate finance: Are male executives
overconfident relative to female executives? Journal of Financial Economics, Vol. 108,
pp. 822-839.
Huang, T., Huang, H., and Lee, C. (2014), Corporate executives gender and audit fees,
Managerial Auditing Journal, Vol. 29, pp. 527-547.
Huang, H.W., Liu, L. L., Raghunandan, K. and Rama, D. V. (2007). Auditor industry
specialization, client bargaining power, and audit fees: Further evidence. Auditing: A
Journal of Practice & Theory, Vol. 26, pp. 147158.
Ilgen, D., Hollenbeck, J., Johnson, M. and Jundt, D. (2005), Teams in organizations: from
input-process-output process models to IMOI models, Annual Review Psychology,
Vol. 56, pp. 517-543.
Ittonen, K., Miettienen, J. and Vahamaa, S. (2010), Does female representation on audit
committee affect audit fee? Quarterly Journal of Finance and Accounting, Vol. 49, pp.
113-139.
Jackson S., Joshi, A. and Erhardt, N. (2003), Recent research on team and organizational
diversity: SWOT analysis and implications, Journal of Management, Vol. 29, pp. 801-
830.
Kennedy, K. and Schumacher, P. (2005), A collaborative project to increase the participation

of women and minorities in higher level mathematical courses, Journal of Education for
Business, Vol 80. Pp.189-193.
Knechel, W.R. and Payne, J. (2001), Additional evidence on audit report lag, Auditing: A
Journal of Practice and Theory, Vol. 20, pp. 137-146.
Knechel, W.R. and Willekens, M. (2006). The role of risk management and governance in
determining audit demand, Journal of Business Finance and Accounting, Vol. 33, pp.
1344-1367.
Knippenberg, D. and Schippers, M. (2007), Work group diversity, Annual Review Psychology,
Vol. 58, pp 515-541.
Krishnan, J. (2005), Audit committee quality and internal control: An empirical analysis, The
Accounting Review, Vol. 80, pp. 649-675.
36
MAJ 1147_Final
Krishnan, J. and Yang, J. (2009), Recent trends in audit report and earnings announcement
lags, Accounting Horizons, Vol. 23, pp. 265-288.
Kross, W. and Schroeder, D. (1984), An empirical investigation of the effect of quarterly

earnings announcement timing on stock returns, Journal of Accounting Research, Vol.
22, pp. 153-176.
Kumar, A. (2010), Self-selection and the forecasting abilities of female equity analysts,
Journal of Accounting Research, Vol. 48, pp. 393-435.
Masli, A, Peters, G.F., Richardson, V.J. and Sanchez, J.M. (2010), Examining the potential
benefit of internal control monitoring technology, The Accounting Review, Vol. 85, pp.
1001-1034.
Miller, T. and Triana, M. (2009), Demographic diversity in the boardroom: Mediators of the
board diversity - firm performance relations, Journal of Management Studies, Vol. 46,
pp. 755-786.
Ng, E. and Sears, G. (2010), What women and ethnic minorities want. Work values and labor
market confidence: a self-determination perspective, The International Journal of
Human Resource Management, Vol. 21, pp.676-698.
Park, S. and Westphal, J. (2013), Social discrimination in the corporate elite: How status
affects propensity for minority CEOs to receive blame for low firm performance,
Administrative Science Quarterly, Vol. 58, pp.542-586.
Raghunandan, K. and Rama, D. (2006), SOX section 404 material weakness disclosures and
audit fees, Auditing: A Journal of Practice and Theory, Vol. 25, pp. 99-114.
Shivdasani, A. (1993), Board composition, ownership structure, and hostile takeovers, Journal
of Accounting and Economics, Vol. 16, pp. 167-198.
Shore, L., Chung-Herrera, B., Dean, M., Ehrhart, K., Jung, K., Randel, D. and Singh, G. (2009),
Diversity in organizations: where we are now and where are we going? Human
Resource Management Review, Vol. 19, pp. 117-133.
Simunic, D. (1980), The pricing of audit services: Theory and evidence, Journal of Accounting
Research, Vol. 18, pp. 161-190.
Srinidhi, B., Gul, F.A. and Tsui, J. (2011), Female directors and earnings quality,
Contemporary Accounting Research, Vol. 28, pp. 1610-1644.
Srinivasan, S. (2005), Consequences of financial reporting failures for outside directors:

Evidence from accounting restatements and audit committee members, Journal of
Accounting Research, Vol. 43, pp. 291-334.
37
MAJ 1147_Final
Tsui, J., Jaggi, B. and Gul, F. (2011), CEO domination, growth opportunities, and their impact
on audit fees, Journal of Accounting, Auditing and Finance, Vol. 16, pp. 189-208.
Zhang, Y., Zhou, J. and Zhou, N. (2007), Audit committee quality, auditor independence, and
internal control weakness, Journal of Accounting and Public Policy, Vol. 26, pp. 300-
327.
38
MAJ 1147_Final
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
PCTWAUD ? ? Ratio of women in audit committee to audit committee size

PCTMAUD ? ? Ratio of ethnic minority in audit committee to audit committee size
PCTAUDFIN - - Ratio of audit committee members with financial expertise to audit committee size
Ratio of audit committee members with general consulting expertise to audit committee
PCTAUDCONS ? ?
size
PCTAUDLEGL ? ? Ratio of audit committee members with legal expertise to audit committee size
PCTAUDEXEC - - Ratio of audit committee members with management expertise to audit committee size
Dummy variable equals one if the chair of the audit committee is female (Ittonen et al.,
WAUDCHR - ?
2010)
MAUDCHR ? ? Dummy variable equals one if the chair of the audit committee is ethnic minority
DCEOFINEXP - - Dummy variable equals one if the CEO has financial expertise
- Natural log of total assets (Raghunandan and Rama, 2006; Ettredge et al., 2006; Masli et
SIZE +
al., 2010)
Ratio of account receivables plus inventory to total assets (Raghunandan and Rama, 2006;
RECINV +
Masli et al., 2010)
FOREIGN + Dummy variable equals one if firm has foreign exchange income/loss (Masli et al., 2010)
GEOSEG + + Number of geographical segments (Masli et al., 2010)
Ratio of current assets to current liabilities (Raghunandan and Rama, 2006; Masli et al.,
LIQ -
2010)
+ Total debts divided by total assets (Raghunandan and Rama, 2006; Ettredge et al., 2006;
LEV +
Masli et al., 2010)
- Return on assets (operating income divided by total assets) (Raghunandan and Rama,
ROA -
2006; Ettredge et al., 2006; Masli et al., 2010)
Dummy variable equals one if the firm received a going concern audit opinion
GCONCERN + +
(Raghunandan and Rama, 2006; Ettredge et al., 2006; Masli et al., 2010)
Dummy variable equals one if the firm is audited by a Big 4 auditor (Raghunandan and
BIG4 +
Rama, 2006; Masli et al., 2010)
Number of reported material control weaknesses (Raghunandan and Rama, 2006; Ettredge
COUNTWEAK + +
et al., 2006)
Dummy variable equals one if firms reported negative net income (Ettredge et al., 2006;
LOSS + +
Masli et al., 2010)
Number of years the firm has been trading in a stock exchange calculated as the difference
FIRMAGE ? + between the current year and the year the firm started trading (the first year it had data
available in CRSP) (Masli et al., 2010)
+ Dummy variable equals one if the firm reported a restatement (Ettredge et al., 2006; Masli
RESTATE +
et al., 2010)
RESTRUCT + Pre-tax restructuring charges over market value of equity (Masli et al., 2010)
BANKRUPTCY - - The decile rank of Altman's Z score (Masli et al., 2010)
The absolute value performance-matched discretionary accruals estimated from Kothari,
ABSDA + +
Leone, Wasley (2005) (Masli et al., 2010)
Dummy variable equals one if year is after the Sarbanes-Oxley Act of 2002 (Masli et al,
POSTSOX + +
2010)
DECEMBER + + Dummy variable equals one if the firm has a calendar (December) year end
Dummy variable equals one if the firm reported a change in auditors (Ettredge et al.,
AUDITCHG +
2006; Masli et al., 2010)
39
MAJ 1147_Final
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)
40
MAJ 1147_Final
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
PCTAUDEXEC 0.128 0.227 0 0 0 0.25 0.50

WAUDCHR 0.068 0.252 0 0 0 0 0
MAUDCHR 0.002 0.048 0 0 0 0 0
DCEOFINEXP 0.051 0.219 0 0 0 0 0
TOTALASSET
($ million) 12184 65050 324.62 703.39 1887 6128 20865
RECINV 0.237 0.1698 0.048 0.101 0.211 0.330 0.460
FOREIGN 0.123 0.328 0 0 0 0 1
GEOSEG 4.477 4.775 1 2 2 6 11
LIQ 2.207 2.455 0 1.061 1.713 2.674 4.221
LEV 0.218 0.184 0 0.050 0.204 0.337 0.459
ROA 0.034 0.181 -0.033 0.016 0.048 0.086 0.129
GCONCERN 0.002 0.049 0 0 0 0 0
BIG4 0.927 0.260 1 1 1 1 1
DWEAK 0.029 0.168 0 0 0 0 0
LOSS 0.163 0.369 0 0 0 0 1
FIRMAGE 24.518 19.536 6 10 18 35 52
RESTATE 0.067 0.251 0 0 0 0 0
RESTRUCT 0.008 0.143 -0.013 -0.002 0 0 0
BANKRUPTCY 4.797 2.710 1 2 5 7 9
ABSDA 0.131 0.230 0 0.048 0.102 0.164 0.236
POSTSOX 0.762 0.426 0 1 1 1 1
DECEMBER 0.691 0.462 0 0 1 1 1
AUDITCHG 0.132 0.338 0 0 0 0 1
EXT 0.092 0.289 0 0 0 0 0
AUDOPIN 0.505 0.500 0 0 1 1 1
BODSIZE 2.182 0.261 1.792 1.946 2.197 2.398 2.485
PCTOD 0.716 0.154 0.5 0.625 0.75 0.833 0.889
CEOCHAIR 0.708 0.455 0 0 1 1 1
BODNMEET 5.288 2.178 3 4 5 6 9
CEOTENURE 15.477 9.360 5 9 13 20 28
CEOTURN 0.016 0.127 0 0 0 0 0
BODTENURE 7.389 4.022 3 5 7 9 12.5
AUDITFEE is the total dollar audit fee ($ million). AUDITDELAY is the number of calendar days from fiscal yearend to the date of auditor's
report (days). TOTAL ASSET is the total asset ($ million). We use the natural log of AUDITFEE, AUDITDELAY, and TOTALASSET in the
regression analyses. See Table 1 for other variable definitions.
41
MAJ 1147_Final
Table 3
Sample distribution across Fama-French 48 industries
Industries Freq. % LAFEE LADELAY

Agriculture 33 0.27 14.275 4.120
Food Products 238 1.96 14.291 3.955
Candy and Soda 24 0.20 14.498 3.853
Beer and Liquor 50 0.41 15.211 3.915
Tobacco Products 20 0.16 16.047 3.670
Recreation 72 0.59 14.326 4.042
Entertainment 72 0.59 13.633 4.045
Printing and Publishing 121 1.00 14.186 3.847
Consumer Goods 215 1.77 14.419 3.865
Apparel 173 1.42 13.915 3.978
Healthcare 216 1.78 13.809 4.062
Medical Equipment 344 2.83 14.116 3.952

Pharmaceutical Products 490 4.03 13.998 3.949
Chemicals 341 2.81 14.597 3.917
Rubber and Plastic Products 75 0.62 14.164 3.983
Textiles 35 0.29 14.249 3.864
Construction Materials 226 1.86 14.001 3.906
Construction 181 1.49 14.067 3.856
Steel Works 185 1.52 14.133 3.879
Fabricated Products 10 0.08 13.322 4.084
Machinery 556 4.58 14.351 3.907
Electrical Equipment 175 1.44 14.367 3.955
Automobiles and Trucks 88 0.72 14.406 4.029
Aircraft 194 1.60 14.204 3.961
Shipbuilding, Railroad Equipment 92 0.76 15.470 3.759
Defense 18 0.15 14.494 4.047
Precious Metals 58 0.48 13.934 4.100
Non-Metallic & Industrial Metal Mining 15 0.12 14.242 3.709
Coal 51 0.42 13.980 3.979
Petroleum and Natural Gas 23 0.19 14.078 3.950
Utilities 473 3.89 14.375 4.043
Communication 804 6.62 14.504 3.982
Personal Services 247 2.03 14.655 3.970
Business Services 116 0.95 13.867 4.083
Computers 1,267 10.43 14.070 3.925
Electronic Equipment 433 3.56 14.292 3.931
Measuring and Control Equipment 879 7.23 13.971 3.909
Business Supplies 291 2.39 14.200 3.931
Shipping Containers 201 1.65 14.468 3.876
Transportation 63 0.52 14.306 3.834
Wholesale 330 2.72 13.835 3.856
Retail 419 3.45 14.147 3.996
Restaurants, Hotels & Motels 772 6.35 13.760 3.952
Banking 250 2.06 13.566 4.004
Insurance 78 0.64 15.253 3.897
Real Estate 583 4.80 14.664 3.964
Trading 15 0.12 14.231 4.020
Others 541 4.45 13.979 4.028
LAFEE is the natural log of audit fee. LADELAY is the natural log of audit delay.
42
MAJ 1147_Final
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.
43
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)*
PCTAUDFIN - -0.0129 -0.0150 - 0.0636 0.0625

(0.10) (0.12) (0.70) (0.69)
PCTAUDCONS ? 0.4189 0.4179 ? -0.0394 -0.0397
(2.81)*** (2.80)*** (0.32) (0.33)
PCTAUDLEGL ? -0.0692 -0.0654 ? -0.2933 -0.2934
(0.58) (0.55) (3.26)*** (3.26)***
PCTAUDEXEC - -0.0923 -0.0913 - -0.0062 -0.0060
(3.21)*** (3.17)*** (0.32) (0.31)
WAUDCHR - -0.0610 ? -0.0115
(3.05)*** (0.99)
MAUDCHR ? 0.0821 ? -0.0170
(0.90) (0.25)
DCEOFINEXP - -0.0426 -0.0434 - -0.0233 -0.0234
(2.02)** (2.07)** (1.91)* (1.92)*
SIZE + 0.5112 0.5113 - -0.0907 -0.0906
(97.20)*** (97.34)*** (19.40)*** (19.38)***
RECINV + 0.6951 0.6956
(15.95)*** (15.99)***
FOREIGN + 0.6452 0.6298
(1.22) (1.19)
GEOSEG + 0.0188 0.0188 + 0.0007 0.0007
(20.83)*** (20.86)*** (1.44) (1.45)
LIQ - -0.0139 -0.0140
(5.14)*** (5.15)***
LEV + -0.0243 -0.0240 + 0.1436 0.1439
(1.31) (1.30) (6.37)*** (6.38)***
ROA - -0.0797 -0.0816 - -0.0861 -0.0871
(1.31) (1.34) (2.11)** (2.13)**
GCONCERN + 0.3418 0.3388 + 0.4336 0.4330
(2.75)*** (2.74)*** (4.86)*** (4.86)***
BIG4 + 0.0260 0.0251
(1.18) (1.14)
COUNTWEAK + 0.1709 0.1706 + 0.1097 0.1098
(8.45)*** (8.42)*** (6.82)*** (6.82)***
LOSS + 0.0663 0.0659 + 0.0248 0.0246
(3.24)*** (3.23)*** (2.15)** (2.14)**
FIRMAGE ? 0.0011 0.0011 + -0.0000 -0.0000
(3.41)*** (3.38)*** (0.22) (0.21)
RESTATE + 0.0635 0.0629 + 0.0346 0.0343
(3.24)*** (3.21)*** (3.92)*** (3.88)***
RESTRUCT + 0.0362 0.0364 + 0.0476 0.0476
(1.94)* (1.97)** (1.69)* (1.69)*
BANKRUPTCY - -0.0369 -0.0369 - -0.0070 -0.0070
(12.59)*** (12.62)*** (3.78)*** (3.78)***
ABSDA + 0.1162 0.1154 + 0.0801 0.0809
MAJ 1147_Final
(3.08)*** (3.06)*** (2.77)*** (2.79)***

POSTSOX + 0.5166 0.5169 + 0.1530 0.1531
(13.86)*** (13.87)*** (5.71)*** (5.72)***
DECEMBER + 0.1408 0.1402 + 0.0171 0.0170
(10.83)*** (10.78)*** (2.31)** (2.30)**
LAFEE + 0.0977 0.0975
(13.42)*** (13.39)***
AUDITCHG + 0.0514 0.0514
(3.26)*** (3.26)***
EXT + 0.0770 0.0771
(5.53)*** (5.53)***
AUDOPIN + 0.0321 0.0321
(4.94)*** (4.94)***
Corporate Governance Control Variables:
BSIZE + 0.1195 0.1208 ? -0.0126 -0.0129

(4.79)*** (4.85)*** (0.81) (0.82)
PCTOD + 0.2737 0.2738 ? -0.2096 -0.2099

(6.59)*** (6.59)*** (8.22)*** (8.24)***
CEOCHAIR + 0.0076 0.0080 ? 0.0101 0.0102
(0.65) (0.68) (1.59) (1.60)
BODNMEET + -0.0149 -0.0146 ? -0.0012 -0.0012
(1.29) (1.26) (0.83) (0.83)
CEOTENURE ? 0.0011 0.0011 ? 0.0010 0.0010
(1.74)* (1.72)* (2.61)*** (2.61)***
CEOTURN + 0.0420 0.0442 ? 0.0015 0.0019
(1.00) (1.05) (0.06) (0.07)
BODTENURE ? -0.0077 -0.0078 ? -0.0019 -0.0019
(5.39)*** (5.47)*** (2.30)** (2.33)**
Observations 12153 12153 12153 12153
R-squared 0.7931 0.7933 0.3664 0.3665
Intercept Yes Yes Yes Yes
See Table 1 for variable definitions. The Fama-French 48 industry dummies and year dummies are included in the regression but
are not reported. Robust absolute values of t-statistics with both firm and year clustering are in parentheses.
*, **, and *** significant at 10%, 5%, and 1%.
45
MAJ 1147_Final
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)***
DT -0.1268 -0.2569 -0.0244 -0.0407 -0.0863

(2.46)** (3.29)*** (0.45) (3.90)*** (6.00)***
TOTRISK -0.9173 -0.6219 -0.9007 -1.6137 -0.5228
(0.55) (1.84)* (1.19) (5.16)*** (1.13)
TOBINQ 0.0165 0.0640 0.0357 0.0014 0.0083
(1.32) (3.79)*** (2.80)*** (0.46) (1.79)*
RET 0.0179 0.0295 0.0011 0.0006 0.0120
(0.83) (0.48) (0.05) (0.15) (1.32)
VWRETD 0.0069 0.1864 0.0291 0.0100 0.0049
(0.08) (1.35) (0.32) (0.52) (0.18)
INDWWPCT 0.8718
(5.10)***
INDWMPCT 0.5036
(2.52)**
INDMMPCT 0.0375
(2.09)**
INDWPCT 0.2080
(7.27)***
INDMPCT 0.8357
(4.89)***
Pseudo R-sq 0.0372 0.2113 0.0649 0.1001 0.1793
LR Statistics 257.87 482.67 304.77 1257.95 1815.38
p-value <0.0001 <0.0001 <0.0001 <0.0001 <0.0001
Intercept -1.8737 -4.5298 -2.7888 -0.5292 -1.4457
(13.12)*** (19.95)*** (17.37)*** (18.12)*** (21.30)***
Observations 12153 12153 12153 12153 12153
ROA is operating income divided by total assets. SIZE is the natural log of total assets. FIRMAGE is the number of years from
which total assets were reported in Compustat. SALEGRW is the average year-to-year percentage change in net sales during 3
preceding years. DIRECTORSHIP is the average number of outside (nonexecutive) directors. DT is the total diversification as
measured in Palepu (1985) as Pi ln(1/Pi) where Pi is the share of the ith industry segment in the total net sales of the firm.
TOTRISK is standard deviation of daily returns over a fiscal year. TOBINQ is the Tobins Q ratio calculated as the book value of
assets minus the book value of equities plus the market value of equities divided by the book value of assets. RET is the annual
stock return during the fiscal year. VWRETD is the value weighted market return during the fiscal year. INDWWPCT
(INDWMPCT, INDMMPCT) is the percentage of employees who were white women (minority women, minority men) in each
industry category as reported by the Bureau of Labor and Statistics. INDWPCT (INDMPCT) is the percentage of employees
who were women (ethnic minority) in each industry category as reported by the Bureau of Labor and Statistics. The Fama-
French 48 industry dummies and year dummies are included in the regression but are not reported. Robust z-statistics with both
firm and year clustering are reported in parentheses (z-statistics is the square root of Chi-squared). *, **, and *** significant at
10%, 5%, and 1%.
46
MAJ 1147_Final
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)**
PCTAUDFIN - -0.0133 -0.0149 - 0.0648 0.0638

(0.11) (0.12) (0.72) (0.70)
PCTAUDCONS ? 0.4001 0.3996 ? -0.0278 -0.0281
(2.70)*** (2.70)*** (0.23) (0.23)
PCTAUDLEGL ? -0.0660 -0.0621 ? -0.3022 -0.3021
(0.55) (0.51) (3.41)*** (3.41)***
PCTAUDEXEC - -0.0902 -0.0892 - -0.0074 -0.0071
(3.15)*** (3.12)*** (0.38) (0.37)
WAUDCHR - -0.0566 ? -0.0121
(2.83)*** (1.04)
MAUDCHR ? 0.0854 ? -0.0163
(0.96) (0.24)
DCEOFINEXP - -0.0458 -0.0465 - -0.0226 -0.0228
(2.19)** (2.22)** (1.85)* (1.86)*
SIZE + 0.6792 0.6792 - -0.0776 -0.0774
(22.38)*** (22.39)*** (3.39)*** (3.39)***
RECINV + 0.6853 0.6857
(15.77)*** (15.81)***
FOREIGN + 0.5573 0.5432
(1.03) (1.01)
GEOSEG + 0.0179 0.0179 + 0.0007 0.0007
(20.12)*** (20.15)*** (1.44) (1.45)
LIQ - -0.0140 -0.0140
(5.20)*** (5.20)***
LEV + -0.0229 -0.0227 + 0.1474 0.1478
(1.29) (1.28) (6.59)*** (6.60)***
ROA - -0.2004 -0.2016 - -0.0149 -0.0156
(3.73)*** (3.76)*** (0.31) (0.33)
GCONCERN + 0.2871 0.2846 + 0.4334 0.4329
(2.42)** (2.41)** (4.95)*** (4.95)***
BIG4 + 0.0342 0.0333
(1.57) (1.52)
COUNTWEAK + 0.1727 0.1724 + 0.1091 0.1092
(8.45)*** (8.43)*** (6.83)*** (6.83)***
LOSS + 0.0979 0.0974 + 0.0379 0.0378
(5.00)*** (4.98)*** (3.30)*** (3.29)***
FIRMAGE ? -0.0006 -0.0006 + -0.0006 -0.0006
(0.87) (0.83) (1.54) (1.51)
RESTATE + 0.0630 0.0624 + 0.0347 0.0345
(3.21)*** (3.18)*** (3.96)*** (3.92)***
RESTRUCT + 0.0394 0.0397 + 0.0471 0.0471
(2.26)** (2.29)** (1.76)* (1.77)*
BANKRUPTCY - -0.0419 -0.0420 - -0.0030 -0.0030
(13.86)*** (13.88)*** (1.59) (1.58)
ABSDA + 0.3122 0.3105 + 0.0115 0.0109
47
MAJ 1147_Final
(7.63)*** (7.60)*** (0.36) (0.34)

POSTSOX + 0.4178 0.4166 + 0.2321 0.2319
(6.54)*** (6.52)*** (6.20)*** (6.19)***
DECEMBER + 0.1398 0.1392 + 0.0167 0.0167
(10.78)*** (10.74)*** (2.27)** (2.27)**
LAFEE + 0.0984 0.0982
(13.40)*** (13.37)***
AUDITCHG + 0.0526 0.0526
(3.33)*** (3.34)***
EXT + 0.0728 0.0730
(5.22)*** (5.22)***
AUDOPIN + 0.0320 0.0321
(4.94)*** (4.94)***
Corporate Governance Control Variables:
BSIZE + 0.0603 0.0636 ? -0.0324 -0.0321

(1.14) (1.21) (1.03) (1.02)
PCTOD + 0.2540 0.2550 ? -0.2101 -0.2103

(5.69)*** (5.71)*** (7.38)*** (7.39)***
CEOCHAIR + 0.0031 0.0036 ? 0.0116 0.0117
(0.27) (0.31) (1.83)* (1.84)*
BODNMEET + -0.0158 -0.0155 ? -0.0012 -0.0012
(1.38) (1.35) (0.83) (0.83)
CEOTENURE ? 0.0013 0.0012 ? 0.0008 0.0008
(1.93)* (1.90)* (2.19)** (2.18)**
CEOTURN + 0.0483 0.0504 ? 0.0022 0.0026
(1.16) (1.22) (0.08) (0.10)
BODTENURE ? -0.0076 -0.0077 ? -0.0017 -0.0017
(5.34)*** (5.42)*** (2.04)** (2.08)**
WWCEO 0.5650 0.5556 -0.2440 -0.2424
(2.96)*** (2.91)*** (2.01)** (1.99)**
WMCEO 0.8925 0.8979 -0.6858 -0.6852
(3.41)*** (3.44)*** (4.67)*** (4.67)***
MMCEO 1.5982 1.6039 -0.2558 -0.2545
(4.30)*** (4.32)*** (1.13) (1.13)
PCTWAUD 2.2484 2.2529 -2.6936 -2.6909
(3.75)*** (3.76)*** (7.07)*** (7.06)***
PCTMAUD 1.1065 1.1116 -0.3247 -0.3257
(2.89)*** (2.91)*** (1.25) (1.26)
Observations 12153 12153 12153 12153
R-squared 0.7951 0.7952 0.3625 0.3625
Intercept Yes Yes Yes Yes
WWCEO (WMCEO, MMCEO) is the inverse-Mills ratio for white female CEO (ethnic minority female CEO, ethnic
minority male CEO) calculated from the first stage regression presented in Table 6. PCTWAUD (PCTMAUD) is the inverse-
Mills ratio for ethnic minority women CEO that is calculated from the first stage regression presented in Table 6. 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%.
48
MAJ 1147_Final
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)
PCTAUDFIN -0.0297 -0.0215

(1.45) (0.48)
PCTAUDCONS -0.0284 -0.0724
(2.43)** (2.26)**
PCTAUDLEGL 0.0035 0.0199
(0.39) (0.81)
PCTAUDEXEC 0.0198 0.0575
(1.70)* (1.49)
WAUDCHR -0.0027 -0.0142
(0.46) (1.03)
MAUDCHR 0.0832 0.1838
(1.50) (1.58)
DCEOFINEXP 0.0046 -0.0043
(0.79) (0.41)
SIZE -0.0080 -0.0108
(1.16) (0.87)
RECINV 0.0257 0.1255
(2.26)** (2.63)***
FOREIGN 0.0702 0.1177
(0.62) (0.58)
GEOSEG 0.0002 -0.0012
(0.56) (1.49)
LIQ -0.0005 -0.0014
(1.00) (0.99)
LEV 0.0012 0.0026
(2.33)** (2.31)**
ROA 0.0043 0.0087
(0.47) (0.24)
GCONCERN 0.0353 0.1394
(0.75) (0.80)
BIG4 -0.0170 -0.0374
(2.56)** (2.40)**
LOSS 0.0201 0.0580
(3.32)*** (2.38)**
FIRMAGE 0.0001 0.0006
(0.52) (1.20)
RESTATE 0.0517 0.1420
(4.89)*** (4.05)***
RESTRUCT 0.0083 0.0307
(1.62) (1.58)
49
MAJ 1147_Final
BANKRUPTCY -0.0036 -0.0125

(4.40)*** (3.73)***
ABSDA 0.0420 0.0976
(4.91)*** (4.04)***
POSTSOX -0.0043 -0.0132
(0.35) (0.79)
DECEMBER 0.0055 0.0203
(1.43) (1.77)*
BSIZE -0.0004 0.0075
(0.03) (0.22)
PCTOD 0.0064 0.0260
(0.50) (0.82)
CEOCHAIR -0.0064 -0.0231
(1.71)* (2.43)**
BODNMEET 0.0029 0.0077
(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
50
MAJ 1147_Final
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
degrees and is a Certified Public Accountant (CPA).
Robert Lee is an assistant professor of accounting at Pepperdine University's Graziadio School of

Business and Management. Prior to his doctoral studies, Dr. Lee worked as a senior auditor in
public accounting and is currently licensed as a certified public accountant. He holds a Ph.D.
from Drexel University, a master in accountancy degree from Villanova University, and a
bachelor of arts degree in economics and mathematics from University of Michigan. His
research focuses on examining the judgment and decision making process in accounting and
auditing contexts. His dissertation was awarded the doctoral student grant from the IMA
Research Foundation. He is a member of the American Accounting Association and the Institute
of Management Accountants and has won various teaching awards.
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.
51

CEOs N Audit 2015

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CEOs N Audit 2015

Uploaded by

Copyright:

Available Formats

Managerial Auditing Journal

*Related content and download information correct at time of download.

Fees and Audit Delay

audit committee (board) members influence these audit outcomes.

Abbott et al. 2012).

audit reporting (i.e., timeliness of audit reports and earnings).

focused on firm-level characteristics and board characteristics, particularly independence,

as reflected in audit fees and audit delay.

and female and ethnic minority CEO and directors.

with audit delay.

We present two competing hypotheses with respect to gender (ethnicity) of audit

are associated with shorter audit delay.

governance, by showing that individual characteristics of CEOs and directors, specifically

intensity, are likely to affect financial reporting decisions.

We contribute to a growing line of research examining the role of diversity in corporate

board oversight of management; we document that ethnic diversity in audit committees is

The remainder of this paper is organized as follows. Section 2 summarizes relevant

2. Literature Review and Hypotheses

2.1 Prior Studies on Gender and Ethnic Differences

chance of survival than those with male CEOs.

sets of experiences, and different perspectives on society. Therefore, an increase in ethnic

increased understanding of different ethnicity or cultures (Shore et al. 2009).6

2.2 Audit Fee Hypothesis Development

members) that influence the level of these audit services.

experienced auditors), leading to higher audit fees.

present the following non-directional hypotheses:

H1a: Ceteris paribus, CEO gender is associated with audit fees.

H1b: Ceteris paribus, CEO ethnicity is associated with audit fees.

depending on the background of individuals serving on them. As such, greater representation of

of group diversity outweighs the negative effect9.

accounting restatements (Srinivasan 2005).10

associated with higher audit fees.

Second, audit committees could obtain greater assurance by exerting pressure on

2012), resulting in lower audit fees.

Given the competing arguments, our second set of hypotheses is non-directional:

2.3 Audit Delay Hypothesis Development

(Bronson et al. 2011).13

announcement of earnings is associated with lower abnormal returns than early

Our third set of hypotheses in an alternative form is as follows.

presence of such directors is negatively associated with audit delay.

3. Methodology and Results

3.1 Sample Selection and Descriptive Statistics

[Insert Table 1 here]

The average percentages of females and ethnic minorities in audit committees

our sample firms have CEOs with financial expertise (DCEOFINEXP).

RESTRUCT, BANKRUPTCY, and ABSDA), the presence of material control weaknesses

(COUNTWEAK), restatements (RESTATE), audit opinion (GCONCERN), auditor type (BIG4),

[Insert Table 2 here]

as audit fees are associated with audit delay.15

Computers, Measuring and Control Equipment, Communication, Restaurants, Hotels, and

across 48 different industries.

[Insert Table 3 here]

pricing and the result of Ittonen et al. (2010).

[Insert Table 4 here]

3.2 Multivariate Regression Results

[Insert Table 5 here]

to pay for higher audit fees.18

providing support for the supply side argument.

members are associated with shorter audit delay.

consistent with Srinidhi et al. (2011).

[Insert Table 6 here]

[Insert Table 7 here]

present the results in Table 8.

(3.08)* (3.06)* (2.77)* (2.79)*

(7.63)* (7.60)* (0.36) (0.34)