Risk Perception and Audit Fees: How Do Auditors Respond When Working with Hometown CEOs?

This study examined how auditors respond to hometown CEOs using social identity theory. We found that hometown CEOs negatively affect audit fees through the reputation concerns and information advantages mechanisms, reflected as lower financial information and litigation risks in their firms. Moreover, this negative relationship is more pronounced among firms immersed in a stronger clan culture, non-state-owned firms, and those whose CEOs enjoy longer tenures, while it is less pronounced in firms whose CEOs possess foreign residency rights. These findings have implications for firms' executive employment, auditors' pricing decisions, and regulators' policy-making decisions.