The relationship between overconfidence of managers and audit fees in the companies approved by Tehran Stock Exchange

Nadimeh Ebrahimpour, Mehdi Alinejad Sarouklaei

Abstract


Most of the managers suppose their own company is more likely to succeed than the other companies. Such a manager is called overconfident. In the present study it is proposed that the relationship between overconfidence of managers and audit fees are influenced by the degree of Auditor’s efforts, so that if the auditors recognize the personal qualities of managers, it is likely that they consider it as a risk factor in auditing plans, so put it in the center of their attention and demand higher fees for their more efforts to reduce the risk of not being discovered. On the other hand overconfident managers may not value the auditing services as the other managers, and due to the overconfidence which is the result of the financial reporting of their company, may be seeking a way to reduce the auditing fees. The present study aims at investigating the effect of overconfidence of the managers on audit fees. The statistical society of the study includes the companies approved by Tehran Stock Exchange during the period 2006-2012. To measure the degree of overconfidence we used regression residual. The results of the study showed that there is a positive meaningful relationship between managers’ overconfidence and audit fees. 


Keywords


managers’ overconfidence, audit fee.  

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