Description:
This study examines whether the presence of rookie independent directors (IDs) is associated with audit fees.We find that the presence of rookie IDs increases firm’s audit fees. Moreover, the positive effect of rookie IDs on audit fees is accentuated for firms whose rookie IDs serve for audit committees, have no academic background, and are busy, for firms whose incumbent audit firms have industry specialization and higher reputation, and auditors are risk averse, and for firms with ineffective internal control and operating in a region with a weak legal environment. Finally, additional tests show that rookie IDs perform poorly in corporate governance, thus increasing audit risk and resulting in higher audit fees. This study adds to the growing literature on rookie IDs and audit fees and facilitates our understanding of the potential cost of appointing rookie IDs in China