Audit committee members' proximity to corporate headquarters and audit fees

Purpose - This study aims to investigate how audit committee members' geographical location relative to corporate headquarters affects audit fees. The motivation for the paper rests on the observation that regulatory and market trends have significantly affected the composition of boards of directors and audit committers. To ensure that audit committees play their monitoring role, regulations now require directors independence and some level of financial expertise. The need to find directors who meet these requirements, as well as the advent of globalization and technological improvements lead firms to expand their reach when looking for directors. Design/methodology/approach - The authors use a sample of 1,517 firm-year observations of Canadian firms from 2008 to 2017. The study relies on multivariate analyses. Findings - The results show that, among nonkral audit committee menthe's, the presence of foreign directors is associated with higher audit fee& In contrast, other nonkral audit committee members do not have a differential impact on audit fas. This effect is more prevalait in large firms. Moreover. having a foreign chair of the audit committee as well as foreign audit euninittce members who are not accounting experts appear - to anrentuate the inc ease in audit fees. A po&sible explanation for the finding is that, from the supply side. auditors assign a higher tisk to fimis with a higher percentage of foreign audit committee members. Alternatively, from the demand side, firms with foreign audit committers members may ask for more audit effort. Martha - analysis indicates that having a higher percentage of foreign audit committee members is associated with a higher likelihood of rcstatanaits, an indication of low audit quality. Originality/value - To the best of the authors' knowledge, this study is the first to document that auditors price the location of audit committee members and consider it when planning for their audit.