Seeing Is Believing? Executives’ Facial Trustworthiness, Auditor Tenure, and Audit Fees

Forthcoming at Journal of Accounting and Economics.

58 Pages Posted: 23 Aug 2019

See all articles by Tien‐Shih Hsieh

Tien‐Shih Hsieh

University of Massachusetts Dartmouth - Department of Accounting & Finance

Jeong-Bon Kim

City University of Hong Kong

Ray R. Wang

Hong Kong Baptist University

Zhihong Wang

Clark University

Date Written: August 21, 2019

Abstract

Psychology and neuroscience studies document that facial trustworthiness perceptions may affect observers’ decision-making process. Our study examines whether auditors’ perceptions of client executives’ facial trustworthiness are associated with their audit fee decisions. We employ a machine-learning-based face-detection algorithm to measure executives’ facial trustworthiness. We find that auditors charge 5.6% less audit fee to firms with trustworthy-looking CFOs than to those with untrustworthy-looking CFOs in initial audit engagements. Auditor tenure weakens the negative association between CFOs’ facial trustworthiness and audit fee. Further evidence shows that CFO’s facial trustworthiness is associated with neither financial reporting quality nor litigation risk.

Keywords: Facial trustworthiness, CFO, audit fee, auditor tenure, cognitive bias

JEL Classification: D81, D83, D91, M12, M42

Suggested Citation

Hsieh, Tien-Shih and Kim, Jeong-Bon and Wang, Ray R. and Wang, Zhihong, Seeing Is Believing? Executives’ Facial Trustworthiness, Auditor Tenure, and Audit Fees (August 21, 2019). Forthcoming at Journal of Accounting and Economics.. Available at SSRN: https://ssrn.com/abstract=3440984

Tien-Shih Hsieh

University of Massachusetts Dartmouth - Department of Accounting & Finance ( email )

285 Old Westport Road
N Dartmouth, MA 02747-2300
United States

Jeong-Bon Kim

City University of Hong Kong ( email )

Department of Accountancy
83 Tat Chee Avenue
Kowloon Tong
Hong Kong
852-3442-7909 (Phone)

Ray R. Wang

Hong Kong Baptist University ( email )

Department of Accountancy and Law
34 Renfrew Road, Kowloon Tong
Hong Kong

Zhihong Wang (Contact Author)

Clark University ( email )

950 Main Street
Worcester, MA 01610
United States

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