Rookie independent directors and audit fees: Evidence from China

Abstract

This study investigates whether the presence of rookie independent directors (rookie IDs) is associated with audit fees and finds a positive association. Moreover, the positive effect of rookie IDs on audit fees is accentuated for firms whose rookie IDs have no academic background, are appointed by CEOs and are college alumni of CEOs, for firms whose incumbent audit firms have industry specialization and higher reputation, and auditors are risk averse, and for firms with ineffective internal control and operating in a region with a weak legal environment. The study further finds that rookie IDs are less likely to cast dissenting votes, indicating that they do not seem to perform their corporate governance role effectively, therefore increasing audit risk and higher audit fees. This study contributes to the growing literature on rookie IDs and audit fees and facilitates our understanding of the potential cost of appointing rookie IDs in China.