CEO Behavioral Integrity, Auditor Responses, and Firm Outcomes
53 Pages Posted: 18 Aug 2012 Last revised: 3 May 2019
Date Written: April 30, 2019
Abstract
We investigate the audit fee response to CEO behavioral integrity (BI). BI refers to the perceived congruence between an individual’s words and deeds (Simons 2002). Because low word-deed congruence should result in more explanations when communicating, we use variation in explanations beyond firm fundamentals and CEO-specific characteristics in more than 30,000 shareholder letters to serve as a linguistic-based proxy for CEO BI. We find audit fees increase as BI decreases, but BI is not associated with financial misstatement or litigation. These findings are potentially consistent with auditors undertaking additional work in response to low BI, which in turn mitigates the risk of restatements and lawsuits. The likelihood of option backdating increases as BI decreases, consistent with the contention that auditors lacked incentives to prevent backdating. Finally, BI is increasing in future performance, which suggests CEOs partially underpin the returns to high-integrity corporate cultures.
Keywords: CEO behavioral integrity; audit fees; financial misreporting; corporate culture
JEL Classification: J24, L25, M14, M41, M42
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
Corporate Fraud and Managers' Behavior: Evidence from the Press
By Jeffrey R. Cohen, Yuan Ding, ...
-
Video: Pioneers in Finance: An Interview with Michael C. Jensen - Part 1 Video 1
-
Bridging the Audit Expectation Gap: The Perception of ICAN Members
-
A Business Ethics Perspective on Sarbanes Oxley and the Organizational Sentencing Guidelines
By David Hess
-
Financial Statement Fraud: Some Lessons from US and European Case Studies
By Niamh M. Brennan and Mary Mcgrath
-
The Impact of Materiality: Accounting's Best Kept Secret
By Niamh M. Brennan and Sidney J. Gray
-
Because That's Where the Money Is: Toward a Theory and Strategy of Corporate Legal Compliance
-
Video: Pioneers in Finance: An Interview with Michael C. Jensen - Part 2 Video 3
-
Do Financial Analysts Perform a Monitoring Role in China? Evidence from Modified Audit Opinions
By Jiandong Chen, Rong Ding, ...