School ties between external auditors and audit committee: evidence from the audit fee in Indonesia

Abstract

Purpose

This study examines the relationship between school ties among external auditors and audit committee members, and their joint impact on audit fee. We also examine how the monitoring and executive functions within companies moderate this relationship.

Design/methodology/approach

This study employs a regression analysis model on a sample of companies listed on the Indonesia Stock Exchange from 2016 to 2019, followed by additional analyses using high-low growth and tech samples, as well as robustness tests involving coarsened exact matching (CEM) and Heckman’s (1979) theory to address potential causality issues.

Findings

This study reveals that school ties between external auditors and audit committees positively influence audit fee. The audit committee size weakens this relationship, while the presence of an internal audit enhances it.

Research limitations/implications

This research contributes to the literature related to the relationship between school ties and audit fee in Indonesian public companies, providing insights for stakeholders and informing company policies. It aims to increase awareness of the significance of school ties among Indonesian companies.

Originality/value

This research fills a knowledge gap by examining the link between audit committee-external auditor relationships and audit fees, aiming to generate new insights and empirical evidence to inform future research and regulatory decisions.