CEO-CFO Compatibility and Audit Engagement Risk

48 Pages Posted: 1 Nov 2019 Last revised: 6 Sep 2022

See all articles by Robert M. Bowen

Robert M. Bowen

Chapman University - The George L. Argyros School of Business & Economics; University of Washington - Foster School of Business

S. Jane (Kennedy) Jollineau

Chapman University - The George L. Argyros School of Business & Economics; 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: August 29, 2022

Abstract

Using similarity between CEO and CFO personalities as a proxy for their compatibility, we find that CEO-CFO similarity is negatively associated with financial reporting risk and audit fees after controlling for other determinants from the prior literature. We also find that audit fees increase (decrease) when personality similarity decreases (increases) following turnover in the CEO-CFO team. Further, the effect of CEO-CFO personality similarity on audit fees is mediated by how long the CEO and CFO work together, although the direct effects of personality similarity remain strong. These results are consistent with compatible CEO-CFO teams reducing engagement risk and, as a result, audit fees.

Keywords: top management team (TMT); audit fees; engagement risk; CEO-CFO harmony and compatibility; personality similarities and differences; auditor tenure

JEL Classification: D81, D83, D91, G41, M12, M42

Suggested Citation

Bowen, Robert M. and Kennedy Jollineau, S. Jane and Lyon, Sarah C and Malhotra, Shavin and Zhu, Pengcheng, CEO-CFO Compatibility and Audit Engagement Risk (August 29, 2022). Available at SSRN: https://ssrn.com/abstract=3473963 or http://dx.doi.org/10.2139/ssrn.3473963

Robert M. Bowen

Chapman University - The George L. Argyros School of Business & Economics ( email )

1 University Drive
Orange, CA 92866
United States
206.334.0911 (Phone)

HOME PAGE: http://www.chapman.edu/our-faculty/robert-bowen

University of Washington - Foster School of Business ( email )

Box 353226
University of Washington
Seattle, WA 98195-3226
United States
206.334.0911 (Phone)

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

S. Jane Kennedy Jollineau (Contact Author)

Chapman University - The George L. Argyros School of Business & Economics ( email )

1 University Drive
Orange, CA 92866
United States
206.227.7868 (Phone)

HOME PAGE: http://www.chapman.edu/our-faculty/jane-jollineau

University of Washington - Foster School of Business ( email )

Seattle, WA 98195-3226
United States
206.227.7868 (Phone)

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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