Managerial ability, financial distress, and audit fees

Ferdinand A. Gul, Mehdi Khedmati, Edwin Kia Yang Lim, Farshid Navissi

Research output: Contribution to journalArticleResearchpeer-review

43 Citations (Scopus)


SYNOPSIS: This study examines whether the relationship between managerial ability and audit fees is conditional on financial distress. We find that higher managerial ability increases audit fees in financially distressed firms and decreases audit fees in non-distressed firms. We also observe that financially distressed firms with higher-ability managers display lower accrual quality and a higher likelihood of restatement. Moreover, higher-ability managers in distressed firms engage more in opportunistic financial reporting to concurrently maximize equity-based compensation and cope with debt refinancing pressures, which increases audit risks and results in greater audit fees. We confirm our results using a battery of sensitivity and additional analyses.

Original languageEnglish
Pages (from-to)29-51
Number of pages23
JournalAccounting Horizons
Issue number1
Publication statusPublished - 1 Mar 2018


  • Audit fees
  • Financial distress
  • Financial reporting quality
  • Managerial ability

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