Abstract
The objective of this study is to investigate the external auditor’s risk assessment of independent directors in Nigeria. The study utilized data from 94 non-financial listed companies on the Nigerian Stock Exchange for the periods 2008-2013. The study used cross-sectional time-series feasible generalized least square regression, which account for heteroscedasticity and autocorrelation to test the influence independent non-executive director on auditor pricing decision in Nigeria. Our result indicates that the proportion of independent non-executive director has a positive relationship with audit fees, suggesting that this class of directors is priced high by the Nigerian auditors. These findings have both policy and practical implication on corporate governance. For instance, future regulatory reforms could consider collaborative board model instead of the insistence on more independent director presence in the boardroom.
Highlights
An important corporate governance mechanism which corporate governance codes have given more emphasis since the Enron scandal in the early 2000 has been the independence of the board of directors
Based on the foregoing countervailing argument on the monitoring prowess of non-executive independent director, this study investigates the impact of non-executive independent directors on the assessed inherent risk perceived by the Nigerian auditors as revealed in the audit fees charged from the supply perspective like prior studies [9; 10]
Since empirical findings regarding the effectiveness of independent non-executive director are inconsistent, this present study posits that: H1: There is a relationship between the proportion of independent non-executive director in boardroom and audit fees
Summary
An important corporate governance mechanism which corporate governance codes have given more emphasis since the Enron scandal in the early 2000 has been the independence of the board of directors. Based on the foregoing countervailing argument on the monitoring prowess of non-executive independent director, this study investigates the impact of non-executive independent directors on the assessed inherent risk perceived by the Nigerian auditors as revealed in the audit fees charged from the supply perspective like prior studies [9; 10]. As documented in the findings of [12]” the traditional role and the overbearing influence of family owners in the context of Nigeria might limit the oversight function and independence of the board. Consistent with this postulation, our findings suggest that the presence of independent directors might not be a panacea for weak governance.
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