Power, risk and cost: how CEO tenure and foreign ownership shape audit pricing in an emerging economy

Purpose This study aims to investigate the intricate relationship between CEO tenure and audit fees, with a focus on the moderating influence of foreign ownership within the context of an emerging market. Design/methodology/approach Utilizing a comprehensive dataset of 1,121 firm-year observations from nonfinancial firms listed on the Egyptian Stock Exchange between 2011 and 2022, the study addresses potential endogeneity concerns through the application of Propensity Score Matching (PSM) and the Heckman two-step model. Findings The results indicate that audit fees escalate significantly during the initial three years and the final year of a CEO’s tenure, reflecting heightened risk perceptions during these periods. Additionally, the study finds that foreign ownership amplifies the positive relationship between CEO tenure and audit fees, suggesting that foreign investors demand higher audit quality as a safeguard against perceived risks. Research limitations/implications The study’s focus on Egyptian nonfinancial firms limits generalizability, and Egypt’s unique audit environment may not reflect global practices. Despite addressing endogeneity, potential bias from unobserved CEO characteristics persists. These findings suggest that similar studies in different contexts are needed to validate the results and that policymakers should consider regional audit practices when developing global standards. Practical implications Auditors and corporate boards should be particularly vigilant during the early and final years of a CEO’s tenure, as these periods are linked to increased audit fees due to heightened risk. Firms with significant foreign ownership should also anticipate higher audit costs driven by the demand for enhanced audit quality. Originality/value This study makes a novel contribution by being the first to analyze the interplay between CEO tenure phases and audit fees within an emerging market, specifically Egypt. Unlike previous research predominantly centered on developed economies, this study introduces a critical examination of how foreign ownership amplifies the influence of CEO tenure on audit costs. The findings offer invaluable insights into the unique dynamics of governance and auditing in regions attracting significant foreign investment, challenging existing frameworks and emphasizing the need for context-specific approaches in corporate governance research.