The governance role of board interlocks in audit pricing: empirical evidence from the KOSDAQ

This study examines the impact of board interlocks on audit fees among firms listed on South Korea's KOSDAQ market. Board interlocks, created when directors serve on multiple boards, represent structural networks that can facilitate information exchange and coordination but may also compromise board independence. Although prior studies have explored the consequences of interlocks in mature markets, evidence from emerging, technology-oriented markets remains limited. This study addresses this gap by analysing whether board interlocks affect total and abnormal audit fees, which reflect auditors' risk assessments, effort, and pricing decisions. Using panel data, we estimate OLS and firm fixed-effects regressions and further validate the results through propensity score matching with fixed effects to mitigate endogeneity concerns. The findings show that inside directors' interlocks, initially associated with higher audit fees in OLS models, become significantly negative once firm-specific factors are controlled for, suggesting that inside directors' networks improve the information environment and reduce auditors' risk perception. Outside directors' interlocks show weaker and less robust negative effects. Overall, the results indicate that board interlocks can stabilise audit fees and enhance audit efficiency, contributing to the literature on corporate governance and audit pricing.