The relationship between auditor size and audit fees: further evidence from big four market shares in emerging economies
Research in Accounting in Emerging Economies
ISBN: 978-0-85724-451-2, eISBN: 978-0-85724-452-9
Publication date: 23 December 2010
Abstract
Purpose – This study examines the relationship between Big Four audit firm country-level market shares and audit fees across a sample of nine emerging economies: Argentina, Brazil, Chile, Hong Kong, Israel, Korea, Mexico, South Africa, and Taiwan.
Design/methodology/approach – First, auditor market share is calculated as a percentage of client sales based on all publicly traded companies in each of the sample countries during the period 2002–2005. Next, Audit Analytics is used to obtain audit fee data for a set of foreign companies listed on a primary U.S. exchange. A final sample of 483 client-year observations is included in the audit fee regression analysis.
Findings – After controlling for other factors related to audit pricing, Big Four auditors with dominant country-level market shares earn a fee premium of approximately 27% over competitor firms.
Originality/value – These results suggest that individual Big Four firm reputations, as measured by fee premiums, are not homogeneous across countries. Rather, it appears the largest audit firms are associated with quality-differentiated services and thus earn higher fees. Although accounting research tends to classify large international accounting firms into a pool of the “Big Four,” these findings indicate that it is important to consider each firm's market share in specific geographic locations when examining questions related to auditor reputation and pricing.
Citation
Fafatas, S.A. and Jialin Sun, K. (2010), "The relationship between auditor size and audit fees: further evidence from big four market shares in emerging economies", Tsamenyi, M. and Uddin, S. (Ed.) Research in Accounting in Emerging Economies (Research in Accounting in Emerging Economies, Vol. 10), Emerald Group Publishing Limited, Leeds, pp. 57-85. https://doi.org/10.1108/S1479-3563(2010)0000010008
Publisher
:Emerald Group Publishing Limited
Copyright © 2010, Emerald Group Publishing Limited