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Diversity as an innovative means to improve corporate governance: a new perspective

Tak Yan Leung (School of Business and Administration, Hong Kong Metropolitan University, Kowloon, Hong Kong)
Anjali Sane (School of Commerce, MIT World Peace University, Pune, India)

Journal of Indian Business Research

ISSN: 1755-4195

Article publication date: 13 December 2022

Issue publication date: 3 March 2023




The purpose of this study is to address the research gap about the impact of board and audit committee diversity (gender, ethnicity, age and education) on audit fee by using a balanced panel of listed firms in four Asian markets – Hong Kong, India, Malaysia and Singapore. The authors argue that a more diverse board and audit committee with the inclusion of females, international directors and directors of different education levels may act as a more effective and innovative mechanism to monitor and regulate important managerial decision such as audit fee.


The authors use a two-stage framework to address the endogeneity issue and the random-effects panel model to control for firm heterogeneity on a balanced panel of 200 firms in four Asian regions over 2011–2013 to examine the hypotheses presented in this study.


The authors find that diversity is a factor determining the level of fees paid to audit firms. A more diverse board and audit committee may demand audit services involving differential effort. Firms with more international directors on board and in audit committee pay a higher fee. In addition, a more educationally diverse board and audit committee also pay a higher fee. In contrast, a significant negative relationship is found between audit committee gender diversity and audit fees, but not between board gender diversity and audit fees, suggesting that a more gender-diverse audit committee asks for less audit effort and pays a lower audit fee.

Research limitations/implications

The findings of this study are based on three years of data from the largest 50 firms in four Asian regions, which limits the generalizability of the results. Like other cross-country studies, the analyses in this study also have problems in controlling for all unobservable factors related to cross-country differences in regulations or institutional environments. Diversity can take other forms, including experience, profession, tenure and marital status which are not a part of this study and lay the foundation for future research.

Practical implications

A firm with a more education-diverse board is more committed to quality monitoring and demands higher audit effort, and consequently, higher fees are paid to audit firms. More educationally diverse board and audit committee exercise more effective monitoring and prefer greater audit effort.

Social implications

Firms with more ethnic-diverse boards and audit committees may demand greater assurance for investor protection and pay higher audit fees. The complementary view of internal and external governance systems suggests more effective monitors may prefer additional protection through the purchase of more audit effort. The findings on education diversity and ethnic diversity are consistent with the argument of the complementary view.


This study highlights the significant impacts of diversity (gender, education and ethnicity) in the financial reporting process.



Leung, T.Y. and Sane, A. (2023), "Diversity as an innovative means to improve corporate governance: a new perspective", Journal of Indian Business Research, Vol. 15 No. 1, pp. 141-156.



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