How does the type of equity compensation of audit committee affect audit fees?

Based on agency theory, if equity compensation aligns audit committee members' interests with those of shareholders, the audit committee will provide effective oversight and demand more thorough audit coverage and scope. This will result in higher audit fees paid to the external auditor. This study specifically examines the associations between the types of equity compensation of audit committeemembers and audit fees.Our findings show differential impacts of equity compensation of audit committee in the forms of option grants and stock awards on audit fees. Specifically, equity compensation using stock awards ismore effective than using option grants in aligning the interests of audit committeemembers with the interests of shareholders to provide better oversight of financial reporting