Audit Committee and CEO Ethnicity and Audit fees: Some Malaysian evidence

This study extends the literature on audit pricing by examining the relationship between ethnicity (bumiputra vs non-bumiputra), corporate governance attributes, and audit fees using data from 559 publicly-listed companies in Malaysia in 2005. Drawing from theories of ethnicity and political economy, we discuss our two hypotheses that predict positive associations between audit fees and (1) the proportion of bumiputra members on audit committees, and (2) the presence of a bumiputra CEO. The results support the hypothesis that firms with bumiputra CEOs incur higher audit fees, but we do not find an association for firms with bumiputra-dominant audit committees. In additional analysis, we find that the audit premium paid by firms with a bumiputra CEO is higher for the smaller client firms. Further, we find that firms managed by a bumiputra CEO with a fully bumiputra-composed audit committee tend to pay higher audit fees than the other firms, indicating that there is a combined ethnicity effect on audit fees.