Does CEO age matter in auditor choice and audit pricing? The role of CEO dominance

Purpose This study examines the impact of the age of the chief executive officer (CEO) on the demand for audit quality, as reflected in auditor choice and audit fees. Furthermore, the study investigates whether CEO dominance moderates the association between CEO age, auditor choice and audit fees. Design/methodology/approach Using a sample of 14,066 firm-year observations from 2000 to 2017, the study employs logistic regression and ordinary least squares (OLS) regressions to estimate the research models. The study also employs various techniques to address the endogeneity issue in the findings. Findings Using industry specialist auditors and brand name (Big 4) auditors as proxies, the study finds that firms with older CEOs are more likely to appoint higher-quality auditors. The study also finds that firms with older CEOs pay higher audit fees than firms with younger CEOs, which is likely to be due to increased demand for higher-quality audits and to risk aversion among older CEOs. In addition, the study finds that CEO dominance attenuates the positive association of CEO age with auditor choice and audit fees. The findings are found to be robust in our analyses, which address the endogeneity issue with firm fixed effects, two-stage least squares (2SLS) regression and entropy balancing. In addition, the study provides evidence that the positive association between CEO age and audit pricing persists when firms replace younger CEOs with older CEOs. Research limitations/implications The study’s findings suggest that the United States (US) Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB) may need to be more cautious when monitoring financial statements from firms with younger CEOs. Originality/value This study contributes to a growing stream of research investigating the links between managers’ idiosyncratic age differences and the quality of financial reporting and corporate decisions.