CEO-CFO Compatibility and Audit Engagement Risk
48 Pages Posted: 1 Nov 2019 Last revised: 6 Sep 2022
Date Written: August 29, 2022
Abstract
Using similarity between CEO and CFO personalities as a proxy for their compatibility, we find that CEO-CFO similarity is negatively associated with financial reporting risk and audit fees after controlling for other determinants from the prior literature. We also find that audit fees increase (decrease) when personality similarity decreases (increases) following turnover in the CEO-CFO team. Further, the effect of CEO-CFO personality similarity on audit fees is mediated by how long the CEO and CFO work together, although the direct effects of personality similarity remain strong. These results are consistent with compatible CEO-CFO teams reducing engagement risk and, as a result, audit fees.
Keywords: top management team (TMT); audit fees; engagement risk; CEO-CFO harmony and compatibility; personality similarities and differences; auditor tenure
JEL Classification: D81, D83, D91, G41, M12, M42
Suggested Citation: Suggested Citation