The Influence of the CEO on Auditor Choice in Private Firms: An Interplay of Willingness and Ability

Maarten Corten, Tensie Steijvers, Nadine Lybaert and Céline Coeckelbergs
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Maarten Corten: Research Center for Entrepreneurship and Family Firms (RCEF), Faculty of Business Economics, Hasselt University, Martelarenlaan 42, 3500 Hasselt, Belgium
Tensie Steijvers: Research Center for Entrepreneurship and Family Firms (RCEF), Faculty of Business Economics, Hasselt University, Martelarenlaan 42, 3500 Hasselt, Belgium
Nadine Lybaert: Research Center for Entrepreneurship and Family Firms (RCEF), Faculty of Business Economics, Hasselt University, Martelarenlaan 42, 3500 Hasselt, Belgium
Céline Coeckelbergs: Research Center for Entrepreneurship and Family Firms (RCEF), Faculty of Business Economics, Hasselt University, Martelarenlaan 42, 3500 Hasselt, Belgium

Sustainability, 2021, vol. 13, issue 12, 1-19

Abstract: Reliable financial reporting is highly important when aiming for sustainable development and the long-term financial stability of the entire economy. An external audit is one of the main monitoring mechanisms to warrant this reliability. While auditing serves as an independent monitoring mechanism towards management, studies indicate that management is often the driving force behind auditor appointments and terminations, especially if it is willing to drive auditor choice. While this raises questions about an auditor’s independence and resulting audit quality, willingness will only have an impact when management is also able to exert its will. This study, therefore, examines to what extent ability strengthens the CEO’s willingness to appoint a non-Big Four auditor. Using a dataset of 316 private firms, regression results show that when the CEO is willing to appoint a non-Big Four auditor and also has sufficient power, it is less likely that a Big Four auditor is actually appointed, at least when the control effectiveness of the board is weak such that the CEO can exert his/her power. This emphasizes the need for both shareholders and legislators to ensure that the independence of the auditor is guaranteed and to implement complementary monitoring mechanisms like a strong board.

Keywords: auditor choice; CEO influence; willingness; ability; private firm (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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