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How do auditors perceive CEO's risk-taking incentives?

Author

Listed:
  • Neil Fargher
  • Alicia Jiang
  • Yangxin Yu
  • Gary Monroe

Abstract

type="main" xml:id="acfi12044-abs-0001"> Prior literature documents that executive compensation influences managerial risk preferences through executives’ portfolio sensitivities to changes in stock prices (delta) and stock-return volatility (vega). Large deltas discourage managerial risk-taking, while large vegas encourage risk-taking. Theory suggests that auditors charge higher audit fees when standard audit procedures do not allow auditors to reduce audit risk including the risk arising from higher business risk. We posit and find evidence of a negative (positive) relation between CEO portfolio deltas (vegas) and audit fees. We also find a negative relation between CEO portfolio deltas and the issuance of going-concern audit opinions (GCO).

Suggested Citation

  • Neil Fargher & Alicia Jiang & Yangxin Yu & Gary Monroe, 2014. "How do auditors perceive CEO's risk-taking incentives?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 54(4), pages 1157-1181, December.
  • Handle: RePEc:bla:acctfi:v:54:y:2014:i:4:p:1157-1181
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    File URL: http://hdl.handle.net/10.1111/acfi.2014.54.issue-4
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    Cited by:

    1. repec:eee:jocaae:v:11:y:2015:i:2:p:148-165 is not listed on IDEAS
    2. Susana Alvarez-Diez & J. Samuel Baixauli-Soler & Maria Belda-Ruiz, 2016. "Early Exercise Behaviour in Performance-vested Stock Option Grants," Annals of Economics and Finance, Society for AEF, vol. 17(1), pages 55-78, May.
    3. repec:eee:advacc:v:33:y:2016:i:c:p:1-10 is not listed on IDEAS
    4. repec:eee:advacc:v:37:y:2017:i:c:p:30-45 is not listed on IDEAS
    5. repec:bla:acctfi:v:56:y:2016:i:4:p:985-1015 is not listed on IDEAS
    6. Jennifer Gippel & Tom Smith & Yushu Zhu, 2015. "Endogeneity in Accounting and Finance Research: Natural Experiments as a State-of-the-Art Solution," Abacus, Accounting Foundation, University of Sydney, vol. 51(2), pages 143-168, June.

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