Generalist CEOs and Audit Pricing

49 Pages Posted: 2 Mar 2021

See all articles by Zhiming Ma

Zhiming Ma

Peking University

Rencheng Wang

Singapore Management University - School of Accountancy

Kaitang Zhou

School of Economics and Management, Wuhan University

Date Written: February 6, 2021

Abstract

We analyze the consequences of a firm hiring a generalist CEO in terms of the audit fees paid by the firm. We find that audit fees of clients with generalist CEOs are higher than those of clients with specialist CEOs. This relation is robust to considering managerial ability, other CEO characteristics, various fixed effects, instrumental variables, and change analyses. We further show that fee differences are larger for firms with weaker monitoring and higher corporate litigation risks. Through path analysis, we find that both client business risk and misreporting risk contribute to the fee difference. Finally, we find that auditors are more likely to issue going-concern opinions to clients with generalist CEOs. Our study should be of interest to auditing standard setters who link management operating styles to audit risk. We shed light on how management operating styles associated with the CEOs’ general or specialized skills affect audit pricing.

Keywords: generalist CEOs; managerial skills, audit risk; agency problem

JEL Classification: M41; M42

Suggested Citation

Ma, Zhiming and Wang, Rencheng and Zhou, Kaitang, Generalist CEOs and Audit Pricing (February 6, 2021). Singapore Management University School of Accountancy Research Paper No. 2021-132, Available at SSRN: https://ssrn.com/abstract=3795167 or http://dx.doi.org/10.2139/ssrn.3795167

Zhiming Ma

Peking University ( email )

Department of Accounting
Guanghua School of Management
Beijing, 100871
China

Rencheng Wang (Contact Author)

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Kaitang Zhou

School of Economics and Management, Wuhan University ( email )

Wuhan, 430072
China

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