CEO Turnover and Audit Pricing

This study examines the relationship between CEO turnover in client companies and the fees charged by their audit firms. We propose that forced CEO turnover (such as dismissals) pose higher business and audit risks for the audit firm than voluntary turnover (such as retirements); further, greater ri...

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Bibliographic Details
Published in:Accounting horizons 2014-06, Vol.28 (2), p.297-312
Main Authors: Huang, Hua-Wei, Parker, Robert J., Yan, Yun-Chia Anderson, Lin, Yi-Hung
Format: Article
Language:English
Subjects:
Accounting firms
Audit fees
Auditing
Audits
Chief executive officers
Corporate governance
Employee turnover
Fees & charges
Forecasts
Pricing
Risk assessment
Risk management
Studies
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Summary:This study examines the relationship between CEO turnover in client companies and the fees charged by their audit firms. We propose that forced CEO turnover (such as dismissals) pose higher business and audit risks for the audit firm than voluntary turnover (such as retirements); further, greater risk leads to higher audit prices. We develop a regression model of audit fees that includes, as predictor variables, type of CEO turnover and control variables identified in prior studies (e.g., ROA, total assets, and corporate governance). Results reveal that companies with forced CEO turnover have significantly higher audit fees than companies with either voluntary turnover or no turnover. Further, we find no difference in audit fees between firms with voluntary turnover and firms without turnover.
ISSN:0888-7993
1558-7975
DOI:10.2308/acch-50706