Auditing Narcissistic CEOs: How Auditors Respond to Clients with a Narcissistic CEO

• In Event: Continental Breakfast and Research & Education Forum
  In Paper Session: Table 1: Audit Risk I

Abstract

This study contributes to the audit literature by providing real-world evidence on how auditors price their audit engagements in response to clients having narcissistic CEOs. Firms with narcissistic CEOs present greater audit risk, as prior research indicates that narcissistic CEOs are more likely to engage in risky business practices and be perceived to be greater fraud risks. Consistent with this notion, we find that CEO narcissism also negatively affects a firm’s accounting quality. We extend the audit fee literature by documenting how auditors handle clients with a narcissistic CEO. We find that CEO narcissism has an economically and statistically significant positive effect on external audit fees, indicating that auditors conduct more work or charge a risk premium when auditing a client with a narcissistic CEO. Additionally, we find that CEO narcissism increases the likelihood of auditor resignation. This is the first study to provide real-world evidence on how auditors handle clients with narcissistic CEOs and shows the significant effect executive personality characteristics can have in an audit setting.

Author

• Scott Judd, University of Illinois at Chicago