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Managerial ability, financial distress, and audit fees

Version 2 2024-06-04, 11:11
Version 1 2017-07-23, 23:19
journal contribution
posted on 2024-06-04, 11:11 authored by Ferdinand GulFerdinand Gul, M Khedmati, Edwin LimEdwin Lim, F Navissi
SYNOPSIS This study examines whether the relationship between managerial ability and audit fees is conditional on financial distress. We find that higher managerial ability increases audit fees in financially distressed firms and decreases audit fees in non-distressed firms. We also observe that financially distressed firms with higher-ability managers display lower accrual quality and a higher likelihood of restatement. Moreover, higher-ability managers in distressed firms engage more in opportunistic financial reporting to concurrently maximize equity-based compensation and cope with debt refinancing pressures, which increases audit risks and results in greater audit fees. We confirm our results using a battery of sensitivity and additional analyses.

History

Journal

Accounting Horizons

Volume

32

Pagination

29-51

Location

Lakewood Ranch, Fla.

ISSN

0888-7993

eISSN

1558-7975

Language

English

Publication classification

C Journal article, C1 Refereed article in a scholarly journal

Copyright notice

[2017, American Accounting Association]

Issue

1

Publisher

AMER ACCOUNTING ASSOC