Industry tournament incentives and audit fees

Yiqing Tan

Journal of Business Finance & Accounting, 2021, vol. 48, issue 3-4, 587-612

Abstract: I examine whether industry tournament incentives of CEOs are associated with audit fees. I find that industry tournament incentives, measured by the compensation gap between a CEO under consideration and the second‐highest‐paid CEO among similar industries, reduce audit fees. Also, this effect is more pronounced for firms with a high level of mobility and managerial ability. To establish causality, I employ a difference‐in‐differences approach to compare the change in audit fees before and after the implementation of FAS 123R. My finding holds after I account for potential endogeneity, different industry classifications, and CFO incentive effects.

Date: 2021
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