Executive equity risk-taking incentives and audit pricing

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

45 Scopus Citations
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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)2205-2234
Journal / PublicationThe Accounting Review
Volume90
Issue number6
Online publishedFeb 2015
Publication statusPublished - Nov 2015
Externally publishedYes

Abstract

Using a large sample of U.S. firms spanning the period 2000–2010, we document a strong positive association between the sensitivity of CEO compensation portfolio to stock return volatility (vega) and audit fees. We also show that the positive association between vega and audit fees is weaker in the post-Sarbanes-Oxley Act (SOX) period. In supplementary tests, we show that the relation between vega and audit fees is stronger for firms with older CEOs and in firms where the CEO is also chairman of the board. Collectively, our results suggest that audit firms incorporate executive risk-taking incentives in the fees they charge for their services.

Research Area(s)

  • executive compensation, audit fees, vega, misreporting, SOX

Citation Format(s)

Executive equity risk-taking incentives and audit pricing. / Chen, Yangyang; Gul, Ferdinand A.; Veeraraghavan, Madhu; Zolotoy, Leon.

In: The Accounting Review, Vol. 90, No. 6, 11.2015, p. 2205-2234.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review