Board Interlocks and Audit Fees

[Purpose] This study examined the relationship between board interlocks and audit fees with the primary objective of determining their significant impact on audit fees, and, by extension, corporate risk and information asymmetry. [Methodology] A sample of 2,560 firm－year observations from 2015 to 2019 was analyzed. Specifically, we examined both the number and mean value of board interlocks owned by firms and differentiates between general and abnormally high audit fees. [Findings] The results showed that the number of board interlocks firms hold is not significantly related to normal audit fees. However, both the number and mean value of board interlocks of internal directors had a significantly negative relationship with abnormally high audit fees, indicating that a higher number or greater mean value of board interlocks leads to a reduction in abnormal audit fees. [Implications] This study highlights the importance of understanding corporate characteristics related to board interlocks by considering both their number and mean value. Our findings suggest that board interlocks reduce audit risk by decreasing corporate uncertainty and information asymmetry. Therefore, in the future, it may be necessary to establish standards or guidelines for utilizing board interlocks in corporate governance.