CEO locality and audit fees

Recent literature suggests that compared to non‐local CEOs, local CEOs care more about reputation capital and hence exhibit a longer‐term orientation. Building on this literature, we address the audit pricing of CEO locality. Our empirical analyses reveal that audit fees for firms with local CEOs ar...

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Bibliographic Details
Published in:International journal of auditing 2024-01, Vol.28 (1), p.44-61
Main Authors: Bolor‐Erdene, Batjargal, Jung, Keumah, Lee, Woo‐Jong, Park, Sohee, Sunwoo, Hee‐Yeon
Format: Article
Language:English
Subjects:
audit pricing
Audit risk
Audits
Chief executives
Companies
local CEOs
Locality
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Summary:Recent literature suggests that compared to non‐local CEOs, local CEOs care more about reputation capital and hence exhibit a longer‐term orientation. Building on this literature, we address the audit pricing of CEO locality. Our empirical analyses reveal that audit fees for firms with local CEOs are lower than those for firms without local CEOs, suggesting a lower audit risk associated with local CEO clients. Seeking the underlying reasons, we indeed find that both client business risk and misreporting risk are lower for firms with local CEOs. Our results are robust to using the matched sample, controlling for potentially correlated variables, change analyses and other alternative specifications. We add to a maturing stream of auditing literature that CEOs' individual traits affect audit pricing.
ISSN:1090-6738
1099-1123
DOI:10.1111/ijau.12313