Hyeesoo (Sally) Chung, Jong-Yu Paula Hao, Jinyoung Wynn
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引用次数: 0
Abstract
Purpose
This paper aims to examine the effect of executive compensation incentives, specifically CEO inside debt holdings, on the choice of industry specialist auditor.
Design/methodology/approach
High inside debt holdings are expected to constrain excessive managerial risk-taking and align the interests of managers and outside debtholders. The authors hypothesize that reduced debtholders’ expropriation concerns will decrease the demand for high audit quality, measured by industry specialization. The authors investigate a sample of US firms from 2006 to 2018 using OLS regression and use CEO relative leverage to proxy for CEO inside debt holdings. The authors conduct an additional two-stage least squares regression analysis to address potential endogeneity issues.
Findings
The paper finds that firms with higher levels of CEO inside debt tend not to appoint an auditor with industry specialization. This result is consistent with the notion that inside debt mitigates agency conflicts between managers and debtholders, reducing the demand for high-quality audits as a monitoring mechanism. The paper also finds that among firms which are excessively leveraged, those with higher levels of CEO inside debt tend to appoint an industry specialist auditor.
Originality/value
The findings contribute to the literature on agency cost and auditor choice by demonstrating that CEO inside debt has both substitutive and complementary effects on demand for industry specialist auditors.
期刊介绍：
The key areas addressed are: ■Audit and Assurance (financial and non-financial) ■Financial and Managerial Reporting ■Governance, controls, risks and ethics ■Organizational issues including firm cultures, performance and development In addition, the evaluation of changes occurring in the auditing profession, as well as the broader fields of accounting and assurance, are also explored. Debates concerning organizational performance and professional competence are also covered.
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