Seeing is believing? Executives' facial trustworthiness, auditor tenure, and audit fees

Tien-Shih Hsieh, Jeong-Bon Kim, Ray R. Wang and Zhihong Wang

Journal of Accounting and Economics, 2020, vol. 69, issue 1

Abstract: Psychology and neuroscience studies document that facial trustworthiness perceptions may affect observers' decision-making process. Our study examines whether auditors' perceptions of client executives' facial trustworthiness are associated with their audit fee decisions. We employ a machine-learning-based face-detection algorithm to measure executives' facial trustworthiness. We find that auditors charge 5.6% less audit fee to firms with trustworthy-looking CFOs than to those with untrustworthy-looking CFOs in initial audit engagements. Auditor tenure weakens the negative association between CFOs' facial trustworthiness and audit fee. Further evidence shows that CFO's facial trustworthiness is associated with neither financial reporting quality nor litigation risk.

Keywords: Facial trustworthiness; CFO; Audit fee; Auditor tenure; Cognitive bias (search for similar items in EconPapers)
JEL-codes: D81 D83 D91 M12 M42 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:69:y:2020:i:1:s0165410119300552

DOI: 10.1016/j.jacceco.2019.101260

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