Throw Money at ICD? The Effect of the Global Financial Crisis on the Link Between Intellectual Capital Disclosure and (Non-)audit Fees

This paper investigates the role of the Global Financial Crisis (GFC) in the relationship between Intellectual Capital Disclosure (ICD) on the one side, and non-audit fees (NAF) and audit fees (AF) on the other side, charged to UK listed companies. The prior literature confirmed mixed effects of ICD on the assessment of Audit Risk (AR) and AF charged to audited companies. By pertaining to the relationship between ICD and AF, many authors affirmed that the variation of the AF is primarily determined by auditor’s effort. However, the relationship between AF and NAF is ambiguous, especially in conditions of instability. Therefore, to test the significance of ICD and NAF on the assessment of AF, an empirical analysis has been performed. The period of the GFC has been investigated in order to test whether the different economic conditions affect the relationships. Data from Thomson Reuter have been analyzed, by extracting data of UK listed firms for the years 2004, 2008, and 2011. Empirical findings show that ICD directly affects neither AF nor NAF, since its effect is mediated by AR. The mediated relationship between ICD on one side, and AF and NAF on the other, varies depending on different economic conditions. Considering the relationship between AF and NAF, a positive relationship has been found during the GFC.