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CFO Compensation and Audit Fees

Author

Listed:
  • Jing Jiang

    (Department of Economics and Finance, Jack Welch College of Business and Technology, Sacred Heart University, Fairfield, CT 06825, USA)

  • Charles T. Fagan

    (Department of Economics and Finance, Jack Welch College of Business and Technology, Sacred Heart University, Fairfield, CT 06825, USA)

  • Linda Hughen

    (Department of Accounting, Jack Welch College of Business and Technology, Sacred Heart University, Fairfield, CT 06825, USA)

Abstract

Executive compensation contracts may influence financial reporting quality, and the CFO plays a key role in preparing the financial statements. This study examines whether the structure and components of CFO compensation are associated with audit risk as measured by audit fees for a sample of S&P 1500 companies during the period 2012–2022. We find that the percentage of total compensation composed of either stock or options is significant and positively related to audit fees, while non-equity incentive plan compensation is significant and negatively related to audit fees. We also find that the dollar amount of equity compensation is significant and positively related to audit fees, while the dollar amount of non-equity compensation is not related to audit fees. These results suggest that CFO compensation structure is an important factor in the assessment of audit risk, which is important for compensation committees as well as regulators. This is the first study, to our knowledge, that examines the relationship between the dollar amount and composition of CFO compensation and audit fees.

Suggested Citation

  • Jing Jiang & Charles T. Fagan & Linda Hughen, 2024. "CFO Compensation and Audit Fees," JRFM, MDPI, vol. 17(11), pages 1-19, October.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:11:p:476-:d:1504068
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    References listed on IDEAS

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