In this study, we examine the effect of co-opted board on audit fees (as a proxy for audit quality), wherein the board comprises directors who are appointed after the CEO assumes office. We use two measures developed by Coles et al.(2014) to calculate the co-opted board. First, we use CO-OPTION, which is the proportion of the board size comprising the co-opted board. Second, we use TW CO-OPTION, which is the sum of co-opted directors’ tenure divided by the sum of all directors’ tenure.
<br>Using a sample of 9,592 firm-year observations in the United States for the period 2000 to 2013, we find that having a high proportion of co-opted board members leads to a decrease in audit quality. This is reflected in the negative relationship between co-opted board and audit fees. This evidence is consistent with the notion that board composition and the effectiveness of board monitoring play significant roles in determining audit fees.
<br>Overall, our results are consistent with those of prior studies that co-opted board imposes weak monitoring. In addition, our study contributes to the auditing literature by showing how board composition and monitoring effectiveness influence audit fees.