Publication Type

Journal Article

Version

acceptedVersion

Publication Date

4-2021

Abstract

We analyze the consequences of a firm hiring a generalist CEO in terms of the audit fees paid by the firm. We find that audit fees of clients with generalist CEOs are higher than those of clients with specialist CEOs. This relation is robust to considering managerial ability, other CEO characteristics, various fixed effects, instrumental variables, and change analyses. We further show that fee differences are larger for firms with weaker monitoring and higher corporate litigation risks. Through path analysis, we find that both client business risk and misreporting risk contribute to the fee difference. Finally, we find that auditors are more likely to issue going-concern opinions to clients with generalist CEOs. Our study should be of interest to auditing standard setters who link management operating styles to audit risk. We shed light on how management operating styles associated with the CEOs' general or specialized skills affect audit pricing.

Keywords

Generalist CEOs, managerial skills, audit risk, agency problem

Discipline

Accounting | Corporate Finance

Research Areas

Corporate Governance, Auditing and Risk Management

Publication

Auditing: A Journal of Practice and Theory

Volume

40

Issue

4

First Page

123

Last Page

147

ISSN

0278-0380

Identifier

10.2308/AJPT-18-086

Publisher

American Accounting Association

Additional URL

https://doi.org/10.2308/AJPT-18-086

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