Does Options Trading Affect Audit Pricing? : WestminsterResearch

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Title	Does Options Trading Affect Audit Pricing?
Type	Journal article
Authors	Muhammad Jahangir Ali, Balasingham Balachandran, Huu Nhan Duong, Premkanth Puwanenthiren and Michael Theobald
Abstract	We examine the impact of options trading on audit pricing for a sample of US firms over the period from 2004 to 2021. We find that options trading is significantly and negatively related to audit fees, indicating that firms characterized by higher options trading incur lower audit fees. Auditors spend a lower number of days auditing firms with higher options trading and firms with higher options trading experience lower probabilities of lawsuits, and misstatements, and lower likelihood of material weaknesses and auditor opinion on internal controls. The impact of options trading on audit fees is stronger when the auditor is located further away from the audited firm, for firms with non-specialized auditors, higher information asymmetry problems, poorer earnings, and lower governance quality. Overall, our findings underscore the significance of options trading in improving a firm’s information environment and reducing litigation risk, resulting in lower audit fees.
Keywords	Audit Fees
	Options Trading
	Restatements
	Lawsuits
	Material Weakness
	Auditor opinion on internal controls
	Information Asymmetry
Journal	Journal of Business Finance & Accounting
ISSN	0306-686X
Year	2024
Publisher	Wiley
Accepted author manuscript	File Access Level Open (open metadata and files)
Publisher's version	Business Fin Account - 2024 - Ali - Does options trading affect audit pricing.pdf License CC BY 4.0 File Access Level Open (open metadata and files)
Digital Object Identifier (DOI)	https://doi.org/10.1111/jbfa.12821
Published online	01 Aug 2024

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