Download This PaperDoes Option Trading Affect Audit Pricing?
Journal of Business Finance and Accounting
71 Pages Posted: 31 Oct 2018 Last revised: 9 Sep 2022
Date Written: June 26, 2024
Abstract
We examine the impact of options trading on audit pricing for a sample of US firms over the period from 2004 to 2021. We find that options trading is significantly and negatively related to audit fees, indicating that firms characterized by higher options trading incur lower audit fees. Auditors spend a lower number of days auditing firms with higher options trading and firms with higher options trading experience lower probabilities of lawsuits, and misstatements, and lower likelihood of material weaknesses and auditor opinion on internal controls. The impact of options trading on audit fees is stronger when the auditor is located further away from the audited firm, for firms with non-specialized auditors, higher information asymmetry problems, poorer earnings, and lower governance quality. Overall, our findings underscore the significance of options trading in improving a firm's information environment and reducing litigation risk, resulting in lower audit fees.
Keywords: Audit Fees, Options Trading, Restatements, Lawsuits, Material Weakness, Auditor opinion on internal controls, Information Asymmetry
JEL Classification: G14; M41; M42
Suggested Citation: Suggested Citation
Muhammad Jahangir Ali
La Trobe University, Department of Accounting, Data Analytics, Economics and Finance ( email )
Bundoora
Melbourne, 3086
Australia
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au