Managerial overconfidence, ability, firm-governance and audit fees

Mitra, Santanu; Jaggi, Bikki; Al-Hayale, Talal

doi:10.1007/s11156-018-0728-3

Cited by 55 publications

(56 citation statements)

References 57 publications

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“…They found that the auditor charged a higher audit fee when the CEO was overconfident. In line with Hribar et al 2013; Mitra et al (2019) a positive relationship exists between managerial overconfidence and audit fees, suggesting that there is a supply-side-based aspect of audit pricing, i.e. the auditor's perspective, in response to the company's risk due to the need to for designing and implementing more extensive audit tests as a result of overconfident management.…”

Section: Managerial Overconfidence and Audit Feesupporting

confidence: 64%

“…Specifically, overconfident firm samples with a strong audit committee paid significantly higher audit fees than those paid by overconfident firm samples lacking a strong audit committee. Mitra et al (2019) concluded that managerial overconfidence will increase financial reporting risk, and the auditor will respond to this by increasing the range of tests needed to decrease the audit risk, and will, therefore, increase the audit fee. An audit committee responds to increasing financial reporting risk caused by an overconfident management by requesting a higher quality audit, which results in a higher audit fee.…”

Section: Audit Committee Effectiveness Managerial Overconfidence Anmentioning

confidence: 99%

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Overconfident Management and the Audit Fee Demand-Side Perspective

Kusharyanti

Kusuma

2020

Asian Economic and Financial Review

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The issue of managerial overconfidence in managers has been studied in relation to audit pricing. Previous studies examined the relationship between managerial overconfidence and audit fees from the supply side. This study investigates the association of managerial overconfidence and audit fees from the demand side. We found a significant negative relationship between managerial overconfidence and audit fees. This finding supports the demand side perspective of audit pricing, specifically that overconfident management demands low quality audit services and subsequently low audit fees. In addition, we also investigated the role of the audit committee in the relationship between managerial overconfidence and audit fees, and found that a negative and significant relationship between managerial overconfidence and audit fees only occurred in companies with a strong audit committee. These findings suggest that a strong audit committee is able to offset the negative effect of managerial overconfidence by increasing monitoring of the financial reporting process, and auditors responds to this by reducing the level of risk of financial reporting and subsequently the audit fee. Contribution/Originality: This study contributes to the auditing field by providing empirical evidence on the impact of CEO characteristics (overconfidence) on audit fees from the demand side perspective. Other studies have examined the factors affecting audit fees from the supply-side perspective. 1. INTRODUCTION Previous research in audit pricing isolates management characteristics as a determinant of audit fees. Carcello, Hermanson, and Ye (2011) suggest the need to incorporate management into the analysis due to management's significant influence on accounting, auditing, and internal control. In line with this suggestion, recent research on the determinants of audit fees on the client side began to incorporate management attributes into their considerations, such as those of the chief executive officer (CEO) demographic characteristics (

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Section: Managerial Overconfidence and Audit Feesupporting

confidence: 64%

Section: Audit Committee Effectiveness Managerial Overconfidence Anmentioning

confidence: 99%

Overconfident Management and the Audit Fee Demand-Side Perspective

Kusharyanti

Kusuma

2020

Asian Economic and Financial Review

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“…Mitra et al (2019) confirm a positive relationship between audit fees and CEO overconfidence, and this relation increases as governance increases, which suggests that good corporate governance demands a higher audit quality to mitigate the negative implications of overconfidence on financial reporting risk Ebrahimpour and Sarouklaei (2016). confirm a positive relationship between audit fees and CEOs overconfidence depending on a sample of corporations listed on the Tehran Stock Exchange.…”

mentioning

confidence: 82%

“…These results encouraged auditing research to start examining auditors' reactions to managerial overconfidence, for example, Ji and Lee (2015); Kim (2017) confirms that auditors adversely value overconfidence when they issue going concern opinion. Yang et al (2013); Ebrahimpour and Sarouklaei (2016); Mitra et al (2019) confirm that audit fees increased in the corporations with overconfident CEOs. This study will extend this literature by exploring auditor's perceptions of CEOs overconfidence in Egypt as one of the emerging countries.…”

Section: -Introductionmentioning

confidence: 92%

Auditor s Perceptions of CEOs Overconfidence in Egypt: A Quasi-Experimental Study

Eissa¹

2020

jafas

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This study aims to explore auditor's perceptions of CEOs overconfidence in Egypt as one of the emerging countries. Design/methodology/approach: A quasi-experimental study is used on a sample comprises of 101 practicing auditors at public accounting firms in Egypt to assess (i) CEO overconfidence in a case scenario, (ii) the quality of earnings that would be provided by this overconfident CEO, and (iii) how overconfident CEO would be considered when they are assessing fraud risk, audit risk, audit effort and audit fees. Findings: The results suggest that not all the auditors in the sample were able to discover the same degree of overconfidence personal traits in a case scenario, and it was done by the sense, and they generally agree that overconfident CEO are more likely to provide lower earnings quality. Accordingly, they raise their assessment for audit fees as a result of an increase in fraud risk, audit risk, and audit effort. Practical implications: This study has significant implications for accounting and auditing professionals, market participants and regulators; where auditors should consider the overconfidence of the CEO during the audit process, market participants should consider managerial overconfidence when they are making investment decisions. Moreover, this study highlights the gap between auditing standards and the professional practice; which requires regulators to consider personal overconfidence traits as an indicator of financial reporting risk. Originality/value: This study helps in filling a gap in the literature; where auditor's perceptions of CEOs overconfidence have not been fully investigated in emerging economies.

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“…Although some scholars have begun to pay attention to the relationship between managerial overconfidence and audit fee [12,13], such studies are still incomplete. And there is not much research on Chinese capital markets.…”

Section: Introductionmentioning

confidence: 99%

Impact of managerial overconfidence on abnormal audit fee: From the perspective of balance mechanism of shareholders

Xie

et al. 2020

PLoS ONE

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Overconfidence, as a psychological feature that is difficult to measure, means that managers are overconfident in their management ability, investment judgment ability and knowledge richness, thus overestimating their ability and making irrational behavior. Based on the sample of Chinese listed firms from 2014 to 2018, we measure managerial overconfidence in terms of age, gender, education, position and salary, and analyzed the relationship between overconfidence, abnormal audit fees, and the balance mechanism of shareholders. The research results show that there is a significant positive correlation between managerial overconfidence and abnormal audit fees, and the balance mechanism of shareholders can significantly inhibit the positive correlation between managerial overconfidence and abnormal audit fees. The research results of this paper are conducive to the supervision department to further improve the relevant supervision measures, improve the audit quality, and provide theoretical support for the more specific requirements of audit fee information disclosure.

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Managerial overconfidence, ability, firm-governance and audit fees

Cited by 55 publications

References 57 publications

Overconfident Management and the Audit Fee Demand-Side Perspective

Overconfident Management and the Audit Fee Demand-Side Perspective

Auditor s Perceptions of CEOs Overconfidence in Egypt: A Quasi-Experimental Study

Impact of managerial overconfidence on abnormal audit fee: From the perspective of balance mechanism of shareholders

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