This paper aims to examine the effects of the board of directors’ characteristics on audit fees and to assess the mediating role of political connections.
This study uses a data set comprising 714 instances of companies listed on the Amman Stock Exchange spanning the years 2009–2022. The analysis used ordinary least squares regression, and to address potential endogeneity issues, the two-stage least squares model was applied.
The findings show that there are positive relationships between a higher proportion of independent directors, board financial experience and audit fees. The study also reveals that CEO duality is negatively associated with audit fees. The outcomes indicate that the positive effects of corporate board characteristics, such as an increased percentage of independent directors and board financial expertise, in ensuring trustworthy financial reports are nullified in the presence of politically connected directors.
This study encourages scholars to delve deeper into the intersection of corporate governance mechanisms and political connections, particularly in developing markets where such dynamics are prevalent.
The study’s findings offer valuable insights and practical implications for policymakers, regulators and corporate managers in Jordan, as well as other developing countries with similar institutional frameworks. These insights are essential for designing effective corporate governance structures that protect shareholders. Moreover, the study’s relevance extends beyond Jordan, demonstrating broader international applicability. Additionally, companies should consider separating the roles of CEO and board chair to mitigate audit-related risks, particularly in politically-sensitive environments.
While past studies have explored various attributes of corporate boards, none have specifically examined the connection between board characteristics and audit fees, especially considering the moderating impact of political connections. The research is among the first to address this gap, providing significant evidence that enriches the existing body of literature.
