Executive equity risk-taking incentives and audit pricing

Yangyang Chen, Ferdinand Akthar Khan Gul, Madhu Veeraraghavan, Leon Zolotoy

    Research output: Contribution to journalArticleResearchpeer-review

    45 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 languageEnglish
    Pages (from-to)2205 - 2234
    Number of pages30
    JournalThe Accounting Review
    Volume90
    Issue number6
    DOIs
    Publication statusPublished - 2015

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