How do auditors perceive CEO's risk-taking incentives?

Neil Fargher; Alicia Jiang; Yangxin Yu

doi:10.1111/acfi.12044

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How do auditors perceive CEO's risk-taking incentives?

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

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39 Scopus Citations

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Author(s)

Neil Fargher
Alicia Jiang
Yangxin Yu

Detail(s)

Original language	English
Pages (from-to)	1157-1181
Journal / Publication	Accounting and Finance
Volume	54
Issue number	4
Online published	6 Sept 2013
Publication status	Published - Dec 2014
Externally published	Yes

Link(s)

DOI	DOI https://doi.org/10.1111/acfi.12044 Final Published version
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Link to Scopus	https://www.scopus.com/record/display.uri?eid=2-s2.0-84919461410&origin=recordpage
Permanent Link	https://scholars.cityu.edu.hk/en/publications/publication(f31c5b92-03e9-4480-b932-53dbdb9c8017).html

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).