How do auditors respond to CEO narcissism? Evidence from external audit fees

J. Scott Judd, Kari Joseph Olsen, James Stekelberg

Research output: Contribution to journalArticle

11 Scopus citations

Abstract

SYNOPSIS: Prior research on CEO narcissism has focused on outcomes related to the CEO’s firm. We extend this literature by examining how an important counterparty-the firm’s external auditor-responds to a client having a more narcissistic CEO. Compared to other firms, firms with narcissistic CEOs are more likely to exhibit greater inherent risk and control risk. To maintain an acceptable level of audit risk when faced with the heightened risk of CEO narcissism, auditors must do additional work. Consistent with this notion, we find that CEO narcissism has an economically and statistically significant positive effect on external audit fees, indicating that auditors work more, charge a risk premium, or both when auditing a client with a more narcissistic CEO. We also find that firms with narcissistic CEOs are more likely to have internal control weaknesses, which suggests a possible mechanism for why auditors might need to perform more work. This is the first study to provide large-sample real-world evidence on how auditors respond to CEO narcissism and demonstrates the significant effect that executive personality characteristics can have in an audit setting.

Original languageEnglish (US)
Pages (from-to)33-52
Number of pages20
JournalAccounting Horizons
Volume31
Issue number4
DOIs
StatePublished - Dec 1 2017

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Keywords

  • Audit fees
  • Audit risk
  • Executive personality traits
  • Narcissism

ASJC Scopus subject areas

  • Accounting

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