| Compensation contract as an important form of incentive mechanism for listed companies,the rational design of the company’s executive compensation gap is a double-edged sword.2019 A-share listed companies average executive compensation gap of about 310,000,the maximum up to about 14.5 million,in 2020 to expand to 340,000,17.2million;as of June 2021,the top seven executive compensation of A-share listed companies are more than 20 million annual salary.With the expansion of the executive compensation gap highlights the incentive effect at the same time,increasing the possibility of negative consequences,if there is an excessive gap will certainly increase corporate risk,which in turn affects the identification and assessment of audit risk,so the expansion of the executive compensation gap after a chain reaction is likely to spread to the audit market.The audit fee is one of the indicators of the audit market,and its level directly reflects the level of competition in the audit market,the level of audit risk,the strength of audit independence,the level of audit quality,etc.This paper therefore examines the impact of the executive compensation gap on audit fees,which will help the Board of Directors and the Compensation Committee to consider compensation policies more comprehensively and make adjustments,and to be alert to the reality of problems arising from compensation incentives and higher audit fee costs.Combining tournament theory and behavioral theory,this study examines the impact of executive compensation gap on audit fees,the moderating effect of internal control quality and innovation input level on the main effect and the mediating role played by audit risk through an empirical analysis of A-share listed companies in China from 2011 to 2020.The empirical results show that:(1)the executive compensation gap positively affects audit fees.The widening of the executive compensation gap causes an increase in the overall risk level of the company,and the third-party auditor will eventually increase the audit fee due to a combination of investment in work,increased audit risk and the risk of litigation in case of audit failure.(2)The quality of internal controls negatively moderates the relationship between the executive compensation gap and audit fees,and high quality internal controls are more effective in mitigating the positive relationship between the executive compensation gap and audit fees.(3)The level of investment in innovation also negatively moderates the relationship between the executive compensation gap and audit fees,as shown by the fact that greater investment in innovation can effectively mitigate the positive relationship between the executive compensation gap and audit fees.(4)Audit risk plays a partially mediating role in the positive effect of executive compensation gap on audit fees.A larger executive compensation gap in a company causes an increase in the overall risk level of the company,the higher the level of audit risk assessed by the auditor for the audited entity,which in turn leads to an increase in audit fees.The conclusions of this paper confirm the applicability of tournament theory and behavioral theory in the study of the relationship between executive compensation gap and audit costs,and the study of the moderating effect and audit risk mediation mechanism not only enriches the academic research perspective and provides a certain reference for further in-depth research on the relationship between executive-level characteristics and audit costs of listed companies;but also provides an opportunity for enterprises to play the role of compensation incentives while finding effective mitigation strategies to mitigate the increase in audit costs of enterprises. |
