Seeing is believing? Executives' facial trustworthiness, auditor tenure, and audit fees

Document Type

Article

Abstract

Psychology and neuroscience studies document that facial trustworthiness perceptions may affect observers' decision-making process. Our study examines whether auditors' perceptions of client executives' facial trustworthiness are associated with their audit fee decisions. We employ a machine-learning-based face-detection algorithm to measure executives' facial trustworthiness. We find that auditors charge 5.6% less audit fee to firms with trustworthy-looking CFOs than to those with untrustworthy-looking CFOs in initial audit engagements. Auditor tenure weakens the negative association between CFOs' facial trustworthiness and audit fee. Further evidence shows that CFO's facial trustworthiness is associated with neither financial reporting quality nor litigation risk.

Publication Title

Journal of Accounting and Economics

Publication Date

2-2020

Volume

69

Issue

1

ISSN

0165-4101

DOI

10.1016/j.jacceco.2019.101260

Keywords

audit fee, auditor tenure, CFO, cognitive bias, facial trustworthiness

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