This study examines the impact of International Financial Reporting Standards (IFRS) adoption on audit fees. We first build an analytical audit fee model to analyze the impact on audit fees for the change in both audit complexity and financial reporting quality brought about by IFRS adoption. We then test the model's predictions using audit fee data from European Union countries that mandated IFRS adoption in 2005. We find that mandatory IFRS adoption has led to an increase in audit fees. We also find that the IFRS-related audit fee premium increases with the increase in audit complexity brought about by IFRS adoption, and decreases with the improvement in financial reporting quality arising from IFRS adoption. Finally, we find some evidence that the IFRS-related audit fee premium is lower in countries with stronger legal regimes. Our results are robust to a variety of sensitivity checks. Data availability: Data are available from public sources identified in the paper.

This study examines the impact of political corruption on the provision of CEO risk-taking incentives. We hypothesize that firms adjust their CEO’s risk-taking incentives to reflect the influence of local political corruption on the firms’ desired level of risk-taking. Using U.S. Department of Justice data on local political corruption, we find that the sensitivity of CEO wealth to stock volatility (vega) is lower in firms located in high-corruption districts. The negative impact of corruption on vega is more pronounced among (1) firms operating in industries that are more dependent on government procurement, (2) firms operating in more innovative industries, and (3) firms without political connections. Our study offers new insights into how the institutional environment shapes executive compensation design. Data Availability: Data are available from the public sources cited in the text.

While prior studies generally support that equity-based compensation induces CEOs to manipulate financial reporting, there is limited direct empirical evidence on whether financial misreporting concerns affect compensation design. A key challenge for establishing a causal relationship is that misreporting incentives and compensation policies are often endogenously determined. Exploiting the exogenous reduction in litigation threat following a 1999 ruling of the U.S. Ninth Circuit Court of Appeals, we examine how heightened misreporting concerns in a less litigious environment affect CEOs' compensation design. Consistent with the theoretical prediction that misreporting concerns prevent companies from providing more powerful incentive pay that is otherwise optimal, we find that firms headquartered in Ninth Circuit states decreased CEOs' equity portfolio vega relative to the control firms after the ruling. We further document that this reduction was concentrated among firms facing greater misreporting concerns post-ruling.