CEO Inside Debt and Audit Fees

12 Pages Posted: 18 Feb 2014

See all articles by Fang Sun

Fang Sun

CUNY Hunter College

Fengyun Wu

Widener University

Sherry F. Li

Rider University

Date Written: March 2014


We examine the impact of CEO inside debt on audit fees. Prior research finds that managerial ownership of debt (such as defined‐benefit pensions and other deferred compensation) reduces debtholders' demand for accounting conservatism. One consequence of using less conservative accounting is an increased likelihood of GAAP violation, which in turn increases audit effort and audit fees. Thus the level of CEO inside debt may be positively associated with audit fees. However, to the extent that inside debt mitigates stockholder‐debtholder conflicts, it is also possible that inside debt leads to decreased audit risk and lower audit fees. We find significant positive relations between inside debt and audit fees, suggesting that auditors consider inside debt as a factor that requires additional audit effort.

Keywords: deferred compensation, pensions, inside debt, audit fees

Suggested Citation

Sun, Fang and Wu, Fengyun and Li, Sherry F., CEO Inside Debt and Audit Fees (March 2014). International Journal of Auditing, Vol. 18, Issue 1, pp. 2-13, 2014, Available at SSRN: or

Fang Sun

CUNY Hunter College ( email )

695 Park Avenue
New York, NY 10065
United States

Fengyun Wu

Widener University

3800 Vartan Way
PO Box 69381
Harrisburg, PA 17106-9381
United States

Sherry F. Li

Rider University ( email )

United States

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