Abstract
Prior research on CEO narcissism has primarily focused on outcomes related to the CEO’s firm. We add to this literature by examining how an important counterparty — the firm’s external auditor — responds to a client having a relatively more narcissistic CEO. Compared to other firms, firms with narcissistic CEOs are more likely to engage in risky business practices and to be perceived as greater fraud risks, both of which increase audit risk. Consistent with this notion, we find that CEO narcissism has an economically and statistically significant positive effect on external audit fees, indicating that auditors perform more work and/or charge a risk premium when auditing a client with a relatively more narcissistic CEO. This is the first study to provide real-world evidence on how auditors respond to CEO narcissism and demonstrates the significant effect that executive personality characteristics can have in an audit setting.
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