The Accounting Review Vol. 90 No. 6 2015

Executive Equity Risk-Taking Incentives and Audit Pricing

Yangyang Chen¹; Ferdinand A. Gul²; Madhu Veeraraghavan³; Leon Zolotoy⁴

¹ The Hong Kong Polytechnic University · ² Monash University · ³ T A Pai Management Institute · ⁴ The University of Melbourne

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 risk-taking incentives in the fees they charge for their services.

DOI

10.2308/accr-51046

Volume

90

Issue

6

Pages

2205-2234

Language

en

Sources

openalex crossref bibtex:phds-export.bib

Cite

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