This study examines whether boards of directors use external auditing to
protect their reputation capital. We hypothesize and find that audit
quality increases with the level of directors’ reputation capital. More
specifically, using ten-year panel data on Finnish listed companies, we
find that our measures of reputation capital based on the number of
directorships that directors possess and their compensation are
positively associated with various proxies for audit quality. We also
find that the observed reputation effect on audit fees is stronger in
companies with an audit committee, and that reputation capital matters
in auditor choice in those companies in particular. In combination, our
results add to the literature on the reputation capital of those in
charge of corporate governance.