Abstract
Despite concerns that profit-sharing plans might have a detrimental effect on audit quality, there is little empirical evidence on this issue. We examine the effects of the type of profit-sharing plan, level of client importance, and auditor reinforcement sensitivity ( joint sensitivity to rewards and punishments) on auditor reporting decisions. By relying on agency theory and reinforcement sensitivity theory, we posit that the joint effects of profit-sharing and client importance on auditors’ decisions are contingent on reinforcement sensitivity. In an experiment with 450 audit partners and managers, we manipulate type of profit-sharing plan and client importance, and measure extroversion and neuroticism. We find the highest audit quality when profit-sharing is based on firm performance, client importance is low, and reinforcement sensitivity is high. Thus, instead of just modifying the type of profit-sharing plans, it is the mix of economic incentives and personality traits that affect audit quality.
Original language | English |
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Pages (from-to) | 107-131 |
Number of pages | 25 |
Journal | Auditing |
Volume | 40 |
Issue number | 1 |
DOIs | |
Publication status | Published - 2021 |
Bibliographical note
Publisher Copyright:© 2021, American Accounting Association. All rights reserved.
Copyright:
Copyright 2021 Elsevier B.V., All rights reserved.
Keywords
- Audit partner compensation
- Economic incentives
- Independence
- Personality traits
- Punishment sensitivity
- Reward sensitivity