Executive equity risk-taking incentives and audit pricing

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

doi:10.2308/accr-51046

Executive equity risk-taking incentives and audit pricing

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

Research output: Journal article publication › Review article › Academic research › peer-review

93 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 language	English
Pages (from-to)	2205-2234
Number of pages	30
Journal	Accounting Review
Volume	90
Issue number	6
DOIs	https://doi.org/10.2308/accr-51046
Publication status	Published - 1 Nov 2015

Keywords

Audit fees
Executive compensation
Misreporting
SOX
Vega

ASJC Scopus subject areas

Accounting
Finance
Economics and Econometrics

More information

10.2308/accr-51046

Cite this

@article{713db9ac525b4705abf81294d4b1015b,

title = "Executive equity risk-taking incentives and audit pricing",

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.",

keywords = "Audit fees, Executive compensation, Misreporting, SOX, Vega",

author = "Yangyang Chen and Gul, {Ferdinand A.} and Madhu Veeraraghavan and Leon Zolotoy",

year = "2015",

month = nov,

day = "1",

doi = "10.2308/accr-51046",

language = "English",

volume = "90",

pages = "2205--2234",

journal = "Accounting Review",

issn = "0001-4826",

publisher = "American Accounting Association",

number = "6",

}

TY - JOUR

T1 - Executive equity risk-taking incentives and audit pricing

AU - Chen, Yangyang

AU - Gul, Ferdinand A.

AU - Veeraraghavan, Madhu

AU - Zolotoy, Leon

PY - 2015/11/1

Y1 - 2015/11/1

N2 - 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.

AB - 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.

KW - Audit fees

KW - Executive compensation

KW - Misreporting

KW - SOX

KW - Vega

UR - http://www.scopus.com/inward/record.url?scp=84937927401&partnerID=8YFLogxK

U2 - 10.2308/accr-51046

DO - 10.2308/accr-51046

M3 - Review article

SN - 0001-4826

VL - 90

SP - 2205

EP - 2234

JO - Accounting Review

JF - Accounting Review

IS - 6

ER -

Executive equity risk-taking incentives and audit pricing

Abstract

Keywords

ASJC Scopus subject areas

More information

Other files and links

Fingerprint

Cite this