Do Audit Fees Reflect Unique Characteristics of Individual Executives?

What is it about?

We investigate whether audit fees reflect differences across individual executives. We find that unexplained audit fees exhibit a statistically and economically significant association with executive fixed effects after controlling for other factors related to the firm and environment. Our tests also show only limited evidence that common, observable executive proxies (such as gender, age, educational background, etc.)are associated with the auditor's perception of an individual executive's style, which suggests that our analysis identifies unobservable traits that cannot be captured by typical measures in archival research. Our study provides new insights about the auditors' private knowledge of executive characteristics and suggests that future research may benefit from additional consideration of individual executives' influence on the pricing of audit services.

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