Purpose This study aims to investigate the moderating role of executive directors’ financial knowledge (ExeFinKnow) and audit committee (AC) independence in the relationship between firm complexity and audit fees. Design/methodology/approach This study uses hand-collected data on 109 firms listed on the Dhaka Stock Exchange, Bangladesh, from 2013 to 2020 (a total of 738 firm-year observations). Multiple regression models are used to test the hypotheses, and this study uses system generalized method of moments (GMM) as the main estimation approach and report two-stage least squares (2SLS) estimates as additional robustness checks for theoretically plausible endogeneity concerns. Findings The findings of the study show that in the presence of high firm complexity, audit fees are comparatively lower for family-controlled firms than for nonfamily firms. Next, this study finds that the presence of ExeFinKnow is linked to a decrease in audit fees, particularly in situations where firm complexity is high. Conversely, when considering the moderating effect of AC independence, this study finds that even in the presence of high firm complexity, audit fees tend to increase if the audit committee is more independent. These findings are robust to a series of additional tests. The results contribute to the debate over the effect of firm complexity on audit fees. By addressing undue complexity, regulators can minimize the manipulation of complex structures and, in turn, curb potential earnings management. Research limitations/implications The findings have implications for both theory and practice. Strong institutional protection for noncontrolling shareholders can mitigate type-II agency problems and the entrenchment effect in family firms. As a result, implementing such protections would increase the demand for higher-quality audits (and thus higher audit fees). In addition, a neutral and independent environment for board members (especially independent directors) needs to be ensured to empower audit committees to demand rigorous audits. The findings are relevant to stakeholders and regulators in countries with similar institutional and cultural contexts. Originality/value This is one of the earliest attempts to explore how the relationship between firm complexity and audit fees is moderated by ExeFinKnow and AC independence in a family-firm-dominated emerging market, and how these governance factors jointly affect audit outcomes.
Hossain et al. (Sun,) studied this question.