CEO’s name uniqueness and audit fee

ABSTRACT

Borrowed from the relevant research on the impact of name uniqueness on one’s personality, our study extends the research perspective to its impact on external auditors. Using the data of Chinese listed firms in 2009–2019, we find a significantly positive relationship between CEOs’ name uniqueness and audit fees. Further study shows that this influence could be explained by its impact on CEOs' personality traits, resulting in strategic deviance or increased audit effort, rather than its impact on auditors' first impression. The impact of CEOs’ name uniqueness on audit fees is more pronounced when CEOs’ characteristics are more susceptible to their name uniqueness, when companies are more likely to attract auditors’ attention, or when auditors are more likely to be affected by their uniqueness. This paper extends the impact of CEOs’ personality traits on audit fees, and expands the understanding of CEOs and audit decision-making.

KEYWORDS:

• Name uniqueness
• personality uniqueness
• strategic deviance
• audit fees

Acknowledgments

We thank Xi Wu, Hanwen Chen (Editors) and two anonymous reviewers for their valuable comments. We appreciate the financial support from the National Natural Science Foundation (No.72072015, No.71620107005), BFSU Double First-Class Major Signature Project (No.2022SYLZD001), and Fundamental Research Funds for the Central Universities (No.2021JJ021).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ The relevant literature review and analysis are detailed in Appendix A.

² URL: https://github.com/psychbruce/ChineseNames. See Chinese Names: Chinese name database 1930–2008 (Bao et al., 2020), retrieved September 1^st, 2020.

³ For example, names such as ‘Jianguo’ and ‘Jianjun’ are very common around the founding of New China. With the development of the times, the number of names with individual characteristics gradually increased. Therefore, name uniqueness may vary with the birth cohort.

⁴ The CEO is identified as a non-Chinese nationality if his/her name is in English. A total of 727 non-Chinese names were screened, accounting for 2.1% of the original sample according to this judgment method.

⁵ The screening method for minority names is as follows: first, all samples with names with more than 3 characters are screened; second, these names are manually judged whether they belong to ethnic minority: (1) the method of judging Uyghur names is whether they are in the form of ‘first name.surname’, such as: Akbar.Maimat, A.Kurban, etc.; (2) the method to judge the Mongolian name is whether they contain words like Tana, Gele, Ulin, etc. According to this criterion, 5 minority names are excluded from our initial sample.

⁶ Two or more CEOs work for a company in the same calendar year.

⁷ However, chairman’s name uniqueness has a significant positive effect on audit fees when the chairman is more involved in the management of the company (e.g. high ownership concentration, non-state-owned enterprises.)

⁸ The name valence dimension measures the degree of positivity of an individual’s name through the degree of positivity of the meaning of each character, and the warmth dimension measures the warmth of an individual’s name by whether the character has warm characteristics such as ‘warm and friendly’, while the competence dimension measures the ability of an individual’s name by whether the character has the characteristics of ‘capable and smart’. All relevant data is available on request.

⁹ Existing literature shows that when CEOs are more aggressive, audit fees will be higher. So are CEOs with unique names more aggressive? And is this an alternative explanation of the higher audit fee? Referring to Liu (2016) etc., this paper constructs an indicator called strategic aggressiveness and examines the relationship between CEOs’ full name uniqueness and strategic aggressiveness. Unlisted findings reject the above possibility. The results show that the CEO’s name uniqueness is not significantly correlated with the strategic aggressiveness. Relevant results are available on request.

¹⁰ Considering that Chinese audit reports are usually signed by two auditors: one is the review auditor (the first signee), and the other is the project manager (the second signee). X He et al. (2018) find that project auditors play a more important role in auditing, so we use the data of project auditors when measuring auditors’ personal traits.

¹¹ In addition, we test the impact of corporate governance on the relationship between full name uniqueness and audit fees. Similar to the results above, the impact of CEO’s name uniqueness on audit fees is not significant when the corporate governance is relatively low (high separation of ownership and control, invalid internal control); and this name uniqueness effect is significant otherwise. Due to space limitations, the result is not reported, but it is available upon request.

¹² We divide our sample into high financial risk group and low financial risk group according to the year-industry median of financial leverage.

¹³ Financing constraints is measured by the SA index (Hadlock & Pierce, 2010). We divide our sample into high financial risk group and low financial risk group according to the year-industry median of financing constraints.

¹⁴ If the company suffers a loss in the previous year, it is regarded as high operational risk group, otherwise, it is regarded as low operational risk group.

¹⁵ If the company’s performance is worse than the year-industry median, it is regarded as high operational risk group, otherwise, it is regarded as low operational risk group.