Does Options Trading Affect Audit Pricing?

Muhammad Jahangir Ali, Balasingham Balachandran, Huu Nhan Duong, Premkanth Puwanenthiren and Michael Theobald 2024. Does Options Trading Affect Audit Pricing? Journal of Business Finance & Accounting. Advanced online publication. https://doi.org/10.1111/jbfa.12821

TitleDoes Options Trading Affect Audit Pricing?
TypeJournal article
AuthorsMuhammad 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.

KeywordsAudit Fees
Options Trading
Restatements
Lawsuits
Material Weakness
Auditor opinion on internal controls
Information Asymmetry
JournalJournal of Business Finance & Accounting
ISSN0306-686X
Year2024
PublisherWiley
Accepted author manuscript
File Access Level
Open (open metadata and files)
Publisher's version
License
CC BY 4.0
File Access Level
Open (open metadata and files)
Digital Object Identifier (DOI)https://doi.org/10.1111/jbfa.12821
Publication dates
Published online01 Aug 2024

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