Generalist CEOs and Audit Pricing

Z Ma，R Wang，K Zhou

Abstract of the paper: 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.

Keyword：generalist CEOs;managerial skills;audit risk;agency problem

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

This article was published in Auditing: A Journal of Practice & Theory, Vol. 40, Issue 4, 2021. The journal is the flagship journal in the field of auditing issued by the American Accounting Association (AAA). It is a B+ award journal of the School of Economics and Management.