انگیزه مسابقات اجرایی و حق الزحمه حسابرسی Executive tournament incentives and audit fees

1. Introduction Recent research suggests that CEO performance-based compensation affects auditor risk assessments (e.g., Chen, Gul, Veeraraghavan, & Zolotoy, 2015; Fargher, Jiang, & Yu, 2014; Kannan, Skantz, & Higgs, 2014; Kim, Li, & Li, 2015). In this study, we posit that the promotionbased compensation incentives of non-CEO executives impact the auditor as well. Specifically, our study investigates whether the incentives for non-CEO executives to become the next CEO, commonly known as “tournament incentives,” influence auditor perceptions of risk. The increase in compensation that a non-CEO executive would obtain from being promoted to CEO is a powerful incentive that motivates each executive to outperform rival executives in order to increase the likelihood of becoming the firm’s next CEO (Haß, Müller, & Vergauwe, 2015; Kale, Reis, & Venkateswaran, 2009; Kini & Williams, 2012; Kubick & Masli, 2016; Lazear & Rosen, 1981; Prendergast, 1999). As the difference in compensation between the CEO and the other executives increases, the incentive to be promoted to CEO becomes stronger (Lazear & Rosen, 1981; Prendergast, 1999). This creates intense competition among non-CEO executives as each hopes to receive the increased compensation associated with “winning” the tournament. Prior research suggests that executives respond to tournament incentives by putting forth greater effort, which leads to better firm performance (e.g., Kale et al., 2009; Lazear & Rosen, 1981; Prendergast, 1999). However, tournament incentives can have negative effects as well. For example, prior research finds that stronger tournament incentives are associated with greater performance misreporting (Conrads, Irlenbusch, Rilke, Schielke, & Walkowitz, 2014), more sabotage activities (Harbring & Irlenbusch, 2011), and a higher likelihood of fraud (Haß et al., 2015). Existing literature also suggests that stronger tournament incentives are associated with greater risk-taking (e.g., Andersson, Holm, Tyran, & Wengström, 2013; Goel & Thakor, 2008; Kini & Williams, 2012; Kubick & Masli, 2016), which can be detrimental to a firm if executives take excessive risks. In this study, we argue that auditors are likely to view tournament incentives as affecting the risk of a material misstatement as well as the risk of litigation arising against the auditor. Consequently, we expect tournament incentives to influence audit fees. Consistent with prior literature (e.g., Haß et al., 2015; Kale et al., 2009; Kini & Williams, 2012; Kubick & Masli, 2016), we measure the strength of tournament incentives using the difference in compensation between the CEO and other executives.