Executive equity risk-taking incentives and audit pricing

Yangyang Chen, Ferdinand A. Gul, Madhu Veeraraghavan, Leon Zolotoy

Research output: Journal article publicationReview articleAcademic researchpeer-review

44 Citations (Scopus)

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 risktaking incentives in the fees they charge for their services.
Original languageEnglish
Pages (from-to)2205-2234
Number of pages30
JournalAccounting Review
Volume90
Issue number6
DOIs
Publication statusPublished - 1 Nov 2015

Keywords

  • Audit fees
  • Executive compensation
  • Misreporting
  • SOX
  • Vega

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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