The effect of cash versus equity compensation on audit committee decision-making - evidence from the 2007 Deloitte censure

Matthew J. Behrend and Marshall K. Pitman

Managerial Auditing Journal, 2021, vol. 37, issue 1, 1-16

Abstract: Purpose - This study aims to investigate the effect of cash versus equity compensation on audit committee decision-making after the Public Companies Oversight Board’s 2007 censure of Deloitte. Design/methodology/approach - Using a sample of 2,588 firms, this paper uses two different compensation measurements to empirically examine the effect of audit committee compensation on decision-making. Findings - The authors find that audit committee compensation effects the post-censure decision-making of Deloitte’s clients. The results support the hypothesis that cash compensation paid to audit committees influences audit committee members to retain their auditors post-censure. Additionally, there is some evidence to support the hypothesis that equity compensation increases the propensity to switch auditors post-censure. Practical implications - This study will be of interest to regulators, policymakers and researchers as it provides further evidence in the area of audit committee decision-making and the effect of cash and stock compensation paid to audit committee members. Originality/value - This study provides empirical evidence of the association between audit committee compensation and audit committee decision-making by investigating the effect of cash-based compensation and stock-based compensation on audit committee decision-making.

Keywords: Deloitte; PCAOB; Censure; Audit committees; G38; L51; M42; M48; M52 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:majpps:maj-08-2019-2383

DOI: 10.1108/MAJ-08-2019-2383

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