Is the CEO’s In-House Experience Informative About Audit Risk?

47 Pages Posted: 6 Jul 2013

See all articles by Paul Brockman

Paul Brockman

Lehigh University - College of Business

Gopal V. Krishnan

Bentley University

Hye Seung (Grace) Lee

Fordham University - Accounting Area

Jesus M. Salas

Lehigh University

Date Written: June 19, 2013

Abstract

Very little is known about whether personal characteristics of senior managers convey information about audit risk. We focus on one characteristic of the CEO, the number of years the CEO has worked in the firm before becoming the CEO (CEO in-house experience). We posit that the CEO’s in-house experience mitigates audit risk due to less uncertainty and more familiarity with the auditor. Using audit fees to proxy for audit risk, we find that audit fees are decreasing in CEO’s in-house experience. On average, audit fees are lower by 10% when CEO in-house experience changes from 2 to 6 years. Further, the relation between audit fees and the CEO’s in-house experience is conditional on the overall quality of corporate governance. While the CEO’s in-house experience is insignificant in firms with good governance, it is strongly significant in firms with weak governance.

Keywords: CEO succession, audit fees, audit risk, corporate governance

JEL Classification: M42, G30, G34

Suggested Citation

Brockman, Paul and Krishnan, Gopal and Lee, Hye Seung (Grace) and Salas, Jesus M., Is the CEO’s In-House Experience Informative About Audit Risk? (June 19, 2013). Available at SSRN: https://ssrn.com/abstract=2290311 or http://dx.doi.org/10.2139/ssrn.2290311

Paul Brockman

Lehigh University - College of Business ( email )

Bethlehem, PA 18015
United States

Gopal Krishnan (Contact Author)

Bentley University ( email )

175 Forest Street
Waltham, MA 02452
United States
781-891-2477 (Phone)

Hye Seung (Grace) Lee

Fordham University - Accounting Area ( email )

Graduate School of Business
113 W. 60th Street
New York, NY 10023
United States

Jesus M. Salas

Lehigh University ( email )

Bethlehem, PA 18015
United States
610-758-3238 (Phone)

HOME PAGE: http://www3.lehigh.edu/business/faculty/salas.asp

Register to save articles to
your library

Register

Paper statistics

Downloads
113
Abstract Views
1,161
rank
242,190
PlumX Metrics