CEO Political Ideologies and Auditor-Client Contracting

Journal of Accounting and Public Policy, 39(5), 106755, 2020

61 Pages Posted: 9 Jun 2022

See all articles by Avishek Bhandari

Avishek Bhandari

University of Wisconsin Whitewater

Joanna Golden

University of Memphis - School of Accountancy

Maya Thevenot

Florida Atlantic University

Date Written: 2020

Abstract

We investigate whether CEOs’ political ideology, as captured by their political contributions, is related to audit risk and, consequently, to audit pricing. We find that Republican CEOs are associated with lower inherent risk and control risk, which represent the two components of audit risk related to the firm, while their Democratic counterparts are seen to have higher risks. Consequently, Republican (Democratic) CEOs are associated with lower (higher) audit fees. The results are robust to controlling for religiosity, executive incentives and ability, obtaining alternative measures of inherent and control risk, and to using propensity score matching and entropy balancing. We further show that changes in political ideology are associated with changes in audit risk and fees. In sum, the evidence implies that auditors view the political ideology of CEOs as an important determinant of engagement risk, which may have important implications for disclosure policy.

Keywords: CEO political ideologies, political ideology, financial reporting quality, restatement, auditor-client contracting, audit quality, audit fees

Suggested Citation

Bhandari, Avishek and Golden, Joanna and Thevenot, Maya, CEO Political Ideologies and Auditor-Client Contracting (2020). Journal of Accounting and Public Policy, 39(5), 106755, 2020 , Available at SSRN: https://ssrn.com/abstract=4120798 or http://dx.doi.org/10.2139/ssrn.4120798

Avishek Bhandari (Contact Author)

University of Wisconsin Whitewater ( email )

Whitewater, WI 53190
United States

Joanna Golden

University of Memphis - School of Accountancy ( email )

223 Fogelman College Admin. Bldg.
Memphis, TN 38152
United States

Maya Thevenot

Florida Atlantic University ( email )

University Tower
220 SE 2 Avenue
Boca Raton, FL 33431
United States

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