Abstract
Prior literature documents that executive compensation influences managerial risk preferences through executives' portfolio sensitivities to changes in stock prices (delta) and stock-return volatility (vega). Large deltas discourage managerial risk-taking, while large vegas encourage risk-taking. Theory suggests that auditors charge higher audit fees when standard audit procedures do not allow auditors to reduce audit risk including the risk arising from higher business risk. We posit and find evidence of a negative (positive) relation between CEO portfolio deltas (vegas) and audit fees. We also find a negative relation between CEO portfolio deltas and the issuance of going-concern audit opinions (GCO).
| Original language | English |
|---|---|
| Pages (from-to) | 1157-1181 |
| Journal | Accounting and Finance |
| Volume | 54 |
| Issue number | 4 |
| Online published | 6 Sept 2013 |
| DOIs | |
| Publication status | Published - Dec 2014 |
| Externally published | Yes |
Research Keywords
- Audit risk
- Compensation incentives
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