scholarly journals A Test of Audit Pricing in the Small-Client Segment: A Comment

1995 ◽  
Vol 10 (2) ◽  
pp. 223-233 ◽  
Author(s):  
Willie E. Gist
Keyword(s):  
Product Differentiation ◽  
Firm Size ◽  
Audit Fees ◽  
Price Premium ◽  
Audit Pricing ◽  
Audit Firm ◽  
Size Classes ◽  
Audit Market ◽  
Second Tier ◽  
The U.S

This study is the second to provide a richer test of the association between auditor size and audit fees by using three audit firm size classes in the small-client segment of the U.S. audit market. The finding of a Big 8 (now Big 6) price premium is consistent with Francis and Simon [1]. However, this price premium exists only with respect to local/regional firms. Francis und Simon showed that the Big 8 price premium exists with respect to both second-tier and local/regional firms. The present study also provides evidence of a second-tier price premium over local/regional firms. The results imply product differentiation to both Big 8 and second-tier firms. Plausible reasons for differences in results between the two studies are given.

Audit Market Structure and Audit Pricing

2016 ◽  
Vol 31 (1) ◽  
pp. 57-81 ◽  
Author(s):  
John Daniel Eshleman ◽  
Bradley P. Lawson
Keyword(s):  
Fixed Effects ◽  
Audit Quality ◽  
Audit Fees ◽  
Market Concentration ◽  
First Year ◽  
Audit Pricing ◽  
Ongoing Debate ◽  
Audit Market ◽  
Big 4 ◽  
The U.S

SYNOPSIS Extant literature finds mixed evidence on the association between audit market concentration and audit fees. We re-examine this issue using a large sample of U.S. audit clients covering 90 metropolitan statistical areas (MSAs) spanning 2000–2013. We find that audit market concentration is associated with significantly higher audit fees, consistent with the concerns of regulators and managers. We also find that increases in audit market concentration are associated with fewer initial engagement fee discounts (i.e., reduced lowballing), particularly for non-Big 4 clients. We reconcile our findings with those of prior research and find that our divergent findings are attributable to controls for MSA fixed effects. In supplemental analyses, we find that audit market concentration is associated with higher audit quality. We also find that concentration is associated with higher audit quality for first-year engagements, but only if the auditor does not lowball on the engagement. Our results are relevant to the ongoing debate regarding the consequences of increased concentration within the U.S. audit market (GAO 2003, 2008). JEL Classifications: M41; M42; L13.

scholarly journals Audit Office Size, Audit Quality, and Audit Pricing

2010 ◽  
Vol 29 (1) ◽  
pp. 73-97 ◽  
Author(s):  
Jong-Hag Choi ◽  
Chansog (Francis) Kim ◽  
Jeong-Bon Kim ◽  
Yoonseok Zang
Keyword(s):  
Firm Size ◽  
Audit Quality ◽  
National Level ◽  
Audit Fees ◽  
Specific Factor ◽  
Audit Pricing ◽  
Audit Firm ◽  
Industry Leadership ◽  
Office Size ◽  
Office Level

SUMMARY: Using a large sample of U.S. audit client firms over the period 2000–2005, this paper investigates whether and how the size of a local practice office within an audit firm (hereafter, office size) is a significant, engagement-specific factor determining audit quality and audit fees over and beyond audit firm size at the national level and auditor industry leadership at the city or office level. For our empirical tests, audit quality is measured by unsigned abnormal accruals, and the office size is measured in two different ways: one based on the number of audit clients in each office and the other based on a total of audit fees earned by each office. Our results show that the office size has significantly positive relations with both audit quality and audit fees, even after controlling for national-level audit firm size and office-level industry expertise. These positive relations support the view that large local offices provide higher-quality audits compared with small local offices, and that such quality differences are priced in the market for audit services.

Spatial Competition at the Intersection of the Large and Small Audit Firm Markets

2015 ◽  
Vol 35 (1) ◽  
pp. 23-45 ◽  
Author(s):  
Kenneth L. Bills ◽  
Nathaniel M. Stephens
Keyword(s):  
Market Share ◽  
Spatial Competition ◽  
Audit Fees ◽  
Differential Impact ◽  
Audit Firm ◽  
Audit Market ◽  
Big 4 ◽  
Audit Firms ◽  
The U.S ◽  
Jel Classifications

SUMMARY In this paper, we study spatial competition in the U.S. audit market while accounting for its two-tiered nature. We provide evidence on the differential impact that market share distances within and between the players in the large and small audit markets have on competition. We find that the market share distance from small audit firm competitors has a greater effect on the Big 4's audit fees than distances from other Big 4 competitors. This finding suggests that small audit firms play a significant part in the competitive landscape in local markets. Further, we find that audit fees are increasing with the distance between a small audit firm and its closest competing small audit firm while audit fees are decreasing with the distance between a small audit firm and its closest competing large audit firm. This suggests that while obtaining separation in market space from competing small audit firms reduces competitive pressure from other small audit firms, as a small audit firm gets closer to the market space of a large audit firm it is perceived as being more like the larger audit firm and is able to obtain a fee premium like that attained by the larger audit firms. JEL Classifications: M4; M40; M41; M42; M49.

The Market Premium for Audit Partners with Big 4 Experience

2020 ◽  
Author(s):  
Aleksandra B. Zimmerman ◽  
Kenneth L. Bills ◽  
Monika Causholli
Keyword(s):  
Audit Quality ◽  
Audit Fees ◽  
Audit Firm ◽  
Audit Market ◽  
Big 4 ◽  
Audit Firms ◽  
Second Tier ◽  
Market Premium

This study investigates how non-Big 4 firm audit partners’ Big 4 experience is valued by the audit market. The Big 4 audit firms have differentiated themselves as nationally recognized firms for whose services companies are willing to pay a premium. It is unclear, however, whether this reputation follows individual auditors when they move to a non-Big 4 audit firm. We find that audit fees are higher for non-Big 4 audit partners with Big 4 experience with the fee premium ranging from 17 to 26 percent depending on the extent of experience when they are employed by small audit firms but find no evidence of a fee premium for Big 4 experience at the second-tier audit firms. Furthermore, in additional analyses, we do not find strong, consistent evidence that audit quality is higher for clients of non-Big 4 audit partners with Big 4 experience than their counterparts without Big 4 experience.

The Market for Audit Services: The Role of Market Power

2020 ◽  
Vol 19 (3) ◽  
pp. 3-8
Author(s):  
Tracy Ti Gu ◽  
Dan A. Simunic ◽  
Michael T. Stein ◽  
Minlei Ye ◽  
Ping Zhang
Keyword(s):  
Market Power ◽  
Firm Size ◽  
Academic Research ◽  
Audit Fees ◽  
Local Market ◽  
Capital Investments ◽  
Audit Firm ◽  
Big 4 ◽  
The Subject

ABSTRACT The market for audit services has been the subject of extensive academic research since the 1970s. The prevailing view is that audit markets are characterized by tiers of suppliers (Big 4 versus non-Big 4, and industry specialists versus non-specialists) where the upper tier suppliers produce and sell a systematically higher level of assurance, while competition among suppliers within tiers is essentially perfect and a uniform price prevails within the submarkets. We discuss three papers that challenge this orthodoxy. These papers argue and find that the price of an audit is essentially unique to each (auditor, client) pair and that this price depends on both audit firm size and client size. Furthermore, audit firm size is linked with the firm's capital investments, which enhance auditor efficiency and market power. We conclude that audit markets are atomistic and that local market power is an important determinant of audit prices and audit fees.

Does audit quality mediate the relationship between audit firm size and audit fees

2019 ◽  
Vol 6 (4) ◽  
pp. 279
Author(s):  
Ayman Bader ◽  
Mohammad Ebrahim Nawaiseh ◽  
Halla Noor Nawaiseh
Keyword(s):  
Firm Size ◽  
Audit Quality ◽  
Audit Fees ◽  
Audit Firm ◽  
The Relationship

Auditor Industry Specialization, Client Bargaining Power, and Audit Pricing

2004 ◽  
Vol 23 (1) ◽  
pp. 123-140 ◽  
Author(s):  
Jeffrey R. Casterella ◽  
Jere R. Francis ◽  
Barry L. Lewis ◽  
Paul L. Walker
Keyword(s):  
Bargaining Power ◽  
Audit Fees ◽  
Sustainable Competitive Advantage ◽  
Audit Pricing ◽  
Absolute Size ◽  
Accounting Firms ◽  
Industry Specialization ◽  
Differentiation Strategy ◽  
Audit Market ◽  
A Company

Porter's (1985) analysis of competitive strategy is used to explain industry specialization by Big 6 accounting firms. In Porter's framework, industry specialization can be viewed as a differentiation strategy whose purpose is to create a sustainable competitive advantage relative to nonspecialist auditors. A differentiation strategy will lead to higher audit fees if valued by clients. We find evidence of higher fees for Big 6 industry specialists relative to nonspecialists in the U.S. audit market, but only for companies in the lower half of the sample based on size (assets <$123 million). By contrast, companies in the upper half of the sample do not pay a specialist premium, and audit fees actually decrease as a company becomes increasingly large relative to its auditor's industry clientele. Together these results suggest that audit fees are higher when clients are small and have little bargaining power, but audit fees are lower when clients have greater bargaining power and this is more likely when companies are large in absolute size and large relative to their auditor's industry clientele.

Audit prices and Big 4 fee premiums: further evidence from Thailand

2017 ◽  
Vol 7 (1) ◽  
pp. 2-15 ◽  
Author(s):  
Thanyawee Pratoomsuwan
Keyword(s):  
Price Competition ◽  
Stock Exchange ◽  
Audit Fees ◽  
Audit Pricing ◽  
Content Type ◽  
Audit Market ◽  
Big 4 ◽  
Audit Fee ◽  
The Usa ◽  
Using Data

Purpose Because there is mixed evidence regarding Big N fee premiums across countries, the purpose of this paper is to re-examine the phenomenon of audit price differentiations in the market for auditing services in Thailand. Although Hay et al. (2006) and Hay (2013) reviewed over 80 audit fee papers from 20 countries over 25 years, 13 of which were based in emerging economies, the understanding of the market for auditing services in Thailand remains limited. Because the Thai auditing market is also classified as a segmented market – i.e., a market that is less competitive for large-client firms and more competitive for small-client firms – this study tests audit price competition in an emerging audit market using Thailand as an example. Design/methodology/approach The traditional audit fee model is used to estimate audit fee premiums for a sample of over 300 non-financial companies listed on the Stock Exchange of Thailand in 2011. Findings Although the market for auditing services in Thailand is consistent with that described in Ferguson et al. (2013) – in which Big N audit firms dominate only the large-client segment – the results show that Big N auditors charge higher audit fees and earn higher fee premiums compared with non-Big N auditors in both the small- and large-client segments of the audit market. Research limitations/implications The evidence from this study reveals the existence of Big N fee premiums across market segmentations. Audit price differentials between Big N and non-Big N firms in both small- and large-client market segments might concern regulators regarding competition in the audit market with respect to whether the Big N firms are charging uncompetitive audit fees. These findings also imply that audit pricing varies across countries and the Big N price deferential is typically larger in emerging markets than in more developed audit markets and that it might be inadequate to study single-country audit pricing. However, the question whether the Big N fee premium results from Big N product differentiation is not directly investigated in this study. Originality/value Because earlier studies focusing on audit fee premiums have been conducted using data from the USA and Australia, the findings add to the limited evidence regarding audit fee premiums in an emerging country such as Thailand.

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