CEO-CFO Personality Differences and Audit Fees: The Price of Conflict?

51 Pages Posted: 1 Nov 2019

See all articles by Robert M. Bowen

Robert M. Bowen

Univeristy of San Diego - School of Business; University of Washington - Foster School of Business; Foster School of Business ; University of San Diego - Department of Accountancy

S. Jane Kennedy Jollineau

University of San Diego - School of Business; University of San Diego - Department of Accountancy; University of Washington - Foster School of Business

Sarah C Lyon

University of San Diego

Shavin Malhotra

University of Waterloo

Pengcheng Zhu

University of San Diego

Date Written: October 22, 2019

Abstract

We examine whether personality differences between the CEO and CFO influence audit fees. Audit fees should reflect engagement risk associated with a client. We use personality differences between the CEO and CFO as a proxy for potential poor communication, reluctance to share information, and other forms of dysfunctional conflict. We find that CEO-CFO personality differences are positively associated with (i) some measures of financial reporting risk, and (ii) audit fees after controlling for other determinants of audit fees from the prior literature. We also find that audit fees increase (decrease) when personality differences increase (decrease) following turnover in the CEO-CFO team. Further, the effect of CEO-CFO personality differences on audit fees is (i) partially mediated by how long the CEO and CFO work together, and (ii) moderated by board independence. Taken together, these results suggest that auditors adjust for potential dysfunctional behavior in the CEO-CFO team in assessing engagement risk and setting audit fees.

Keywords: CEO-CFO conflict; cognitive conflict; affective conflict; personality differences; top management team (TMT) diversity; financial reporting risk; audit fees; engagement risk; board independence; auditor tenure

JEL Classification: D81, D83, M12, M14, M49

Suggested Citation

Bowen, Robert M. and Kennedy Jollineau, S. Jane and Lyon, Sarah C and Malhotra, Shavin and Zhu, Pengcheng, CEO-CFO Personality Differences and Audit Fees: The Price of Conflict? (October 22, 2019). Available at SSRN: https://ssrn.com/abstract=3473963

Robert M. Bowen (Contact Author)

Univeristy of San Diego - School of Business ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

HOME PAGE: http://https://www.sandiego.edu/business/undergraduate/accountancy/biography.php?profile_id=1799

University of Washington - Foster School of Business ( email )

Box 353226
University of Washington
Seattle, WA 98195-3226
United States

HOME PAGE: http://https://foster.uw.edu/faculty-research/directory/robert-bowen/

Foster School of Business ( email )

557 Paccar Hall
Seattle, WA 98195
United States
(206) 543-4569 (Phone)
(206) 685-9392 (Fax)

HOME PAGE: http://faculty.washington.edu/rbowen/

University of San Diego - Department of Accountancy ( email )

223 Olin Hall
5998 Alcalá Park
San Diego, CA 92110
United States
619.260.2385 (Phone)

HOME PAGE: http://www.sandiego.edu/business/directory/biography.php?id=1232

S. Jane Kennedy Jollineau

University of San Diego - School of Business ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States
619.260.2766 (Phone)

University of San Diego - Department of Accountancy ( email )

223 Olin Hall
5998 Alcalá Park
San Diego, CA
United States

HOME PAGE: http://https://www.sandiego.edu/business/directory/biography.php?_focus=1238

University of Washington - Foster School of Business ( email )

Seattle, WA 98195-3226
United States
206-543-4368 (Phone)
206-685-9392 (Fax)

Sarah C Lyon

University of San Diego ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States
6192604849 (Phone)
92110 (Fax)

HOME PAGE: http://www.sandiego.edu/

Shavin Malhotra

University of Waterloo ( email )

200 University Ave W
University of Waterloo
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 (Phone)

Pengcheng Zhu

University of San Diego ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

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