Are ex-military executives trustworthy? Evidence from audit fees

This study examines the association between firm executives' ex-military backgrounds and audit fees. We find that auditors tend to charge lower fees from clients with ex-military executives than clients without ex-military executives. This finding holds for various robustness tests, including a change model using executive turnovers, instrumental variable estimation and a propensity score matching method. Further analyses indicate that the negative association between audit fees and military experience is more pronounced in non-state-owned entities, in more complex firms and firms with CEO/chairman duality. Finally, we show that firms with ex-military executives are more likely to have better information transparency and more minor internal control weakness, issue fewer financial restatements and are less likely to be involved in litigation. This suggests that the lower audit pricing can be partially attributed to reduced inherent and control risks. This paper demonstrates that executives' life experiences can affect auditors' risk perceptions and audit pricing.