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Korean Academic Society of Business Administration
[ Article ]
korean management review - Vol. 53, No. 3, pp.595-629
ISSN: 1226-1874 (Print)
Print publication date 30 Jun 2024
Received 01 Nov 2024 Revised 04 Mar 2024 Accepted 18 Mar 2024
DOI: https://doi.org/10.17287/kmr.2024.53.3.595

Early-tenure CEOs and Auditor Locality

Batjargal Bolor-Erdene ; Jaeho Yoo
(First and Corresponding Author) Seoul National University jinwoo3399@gmail.com
(Co-Author) University of North Carolina at Chapel Hill jaeho_yoo@kenan-flagler.unc.edu
경영자 재임 초기와 감사인의 지역성
밭자르갈 ; 유재호
(주저자 및 교신저자) 서울대학교 회계학 박사과정
(공저자) 회계학 박사과정


Copyright 2024 THE KOREAN ACADEMIC SOCIETY OF BUSINESS ADMINISTRATION
This is an open access article distributed under the terms of the Creative Commons Attribution License 4.0, which permits unrestricted, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

Recent literature suggests that locals have an informational advantage over nonlocals (Coval and Moskowitz 2001; Ivkovic and Weisbenner 2005; Bae et al. 2008; Lim and Nguyen 2021). In line with this, local auditors, compared to non-local auditors, provide higher-quality auditing services (Choi et al. 2012). Previous studies have also found that the CEO’s personal traits influence the firm’s decisions and performance (Hambrick 2007). For example, earnings overstatement is more pronounced in the early years than in the later years of CEOs' service due to their career concerns (Ali and Zhang 2015). Building on this literature, we investigate the early-tenure CEO’s effect on the firm’s auditor selection, especially auditor locality. Our empirical analyses reveal that firms are less likely to choose local auditors in the early years of a CEO’s service compared to the later years. While exploring the underlying reasons, we find that firms with early-tenure CEOs are more likely to have lower-quality financial statements and a higher probability of financial fraud than firms led by CEOs with later years of service. We contribute to the auditing literature by highlighting how CEOs' individual traits affect auditor selection.

Keywords:

CEO career concerns, CEO tenure, Early-tenure CEOs, Local auditors

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∙ The author Batjargal Bolor-Erdene graduated from the National University of Mongolia in 2015 with a Bachelor’s degree in Business Administration and again in 2017 with a Master’s degree in Business Administration. Additionally, Batjargal graduated from the Korean Language Center at Korea University in 2019. Currently, Batjargal is a PhD student in accounting at Seoul National University. His main research interests include managerial accounting and audit.

∙ The author Jaeho Yoo is currently a student in a doctoral program in accounting at the University of North Carolina. Jaeho Yoo received both his master’s and bachelor’s degrees from Seoul National University.