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…
Abstract
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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Thanyawee Pratoomsuwan and Yingyot Chiaravutthi
Recent research finds that the effect of corporate social responsibility (CSR) information, especially when CSR is not related to core business activities (immaterial CSR issues)…
Abstract
Purpose
Recent research finds that the effect of corporate social responsibility (CSR) information, especially when CSR is not related to core business activities (immaterial CSR issues), on investment decisions will be eliminated when it is explicitly assessed. As CSR expectations from investors appear to be different across specific cultures and countries (Van der Laan Smith et al., 2010), we aim to investigate (1) the effect of CSR materiality on investors' willingness to invest and (2) how the explicit assessment of CSR information moderates the effect of explicit assessment and CSR materiality on investment judgment by professional investors in Thailand.
Design/methodology/approach
A 2 × 2 between-subject experiment was conducted based on 136 professional investors.
Findings
Overall, the results suggest that an investor's willingness to invest is greater when CSR is material than when CSR is immaterial. In addition, the assessment of willingness to invest in a firm's stock is not affected by the presence or absence of explicit assessment of the material CSR. However, the results suggest that when CSR issues are immaterial, explicit assessment significantly removes the effect of CSR performance on the investor's investment judgment. Consistent with the findings from Guiral et al. (2019), professional investors seem to process CSR information in a similar way as nonprofessional investors.
Practical implications
The findings suggest that material CSR information has a significant impact on the investment decisions of professional investors. This is consistent with the materiality guidance provided by the Sustainability Accounting Standard Board (SASB) as helpful in improving the value of CSR information for investors. These results should be of interest to both business people and regulators because, despite differences in the cultural and audit environment, the results confirm that professional investors in Thailand use CSR information in an experimental setting, thereby providing some evidence of value creation from CSR activities and nonfinancial disclosures.
Originality/value
While recent experimental research has primarily examined how nonprofessional investors evaluate CSR information in Western countries, this study extends the literature by focusing on professional investors in emerging capital markets and how they use CSR information in their investment decisions (Coram et al., 2009). The study also addresses the call for research on differences in CSR reporting and practices in different cultures and countries (Van der Laan Smith et al., 2010; Coram et al., 2009) to provide insights into how professional investors in Thailand use CSR information to formulate investment judgments.
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Thanyawee Pratoomsuwan and Orapan Yolrabil
This study examines the effects of key audit matter (KAM) disclosures in auditors' reports on auditor liability in cases of fraud and error misstatements using evaluators with…
Abstract
Purpose
This study examines the effects of key audit matter (KAM) disclosures in auditors' reports on auditor liability in cases of fraud and error misstatements using evaluators with audit experience.
Design/methodology/approach
The experiment is conducted using 174 professional auditors as participants.
Findings
The participating auditors assess higher auditor liability when misstatements are related to errors rather than when they are related to fraud. In addition, the results also demonstrate that KAM disclosures reduce auditor liability only in cases of fraud and not in cases of errors. Together, the results support the view that KAM reduces the negative affective reactions of evaluators, which in turn, reduce the assessed auditor liability.
Research limitations/implications
This study did not analyze the setting in which auditors who act as peer evaluators had an opportunity to discuss the case among their peers, which may have affected their judgments.
Practical implications
The results of KAM disclosures on auditor liability in cases of error and fraud misstatements inform auditors that, different from the auditors' concern that disclosing KAM may increase auditors' legal risk, it tends to decrease or at least have no impact on the liability judgment.
Originality/value
This study contributes to the accounting literature by adding findings on another aspect of KAM in different audit settings, particularly, in the Thai legal environment with different types of undetected misstatements. The current conflicting results on how KAM disclosures affect auditor liability warrant further investigation of this issue in other audit contexts in different countries.
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The purpose of this paper is to examine the demand for high quality auditors and the effect of their brand names on a security's pricing at the time of its initial public…
Abstract
Purpose
The purpose of this paper is to examine the demand for high quality auditors and the effect of their brand names on a security's pricing at the time of its initial public offering. Because the Thai capital market is highly regulated, especially in terms of auditor selection (i.e. the Thai Security and Exchange Commission provides a list of individually qualified auditors and underwriting firms that the issuing firms have to choose from), it is therefore of interest to look at the demand for reputable audit firms and the importance of reputation capital in the signaling mechanism.
Design/methodology/approach
Data were collected from 100 issuing firms that went public between 2003 and 2008. Logistic regression and OLS regression were applied to test the relationship between the use of reputable audit firms and the level of underpricing of new issues. The demand for reputable audit firms in this highly regulated capital market is also examined.
Findings
The results suggest that only the newer large firms will select the higher quality audit firms, namely the Big Four. Furthermore, the role of the audit firms in the signaling model is also examined. The findings illustrate that new security issues are underpriced less when they engage Big Four audit firms, but there is no significant association between the underwriter and the level of underpricing. However, this relationship becomes more negative when Big Four audit firms and prestigious underwriters are both employed.
Research limitations/implications
The findings confirm the auditor's significant signaling role. Therefore, when the choice of an auditor and underwriter is restricted, the issuing firms should consider hiring reputable audit firms, rather than prestigious underwriters, at the time of the initial public offering. Potential investors could also use the interpretations of these findings to make rational investment decisions.
Originality/value
The paper focuses on the new issues market in Thailand, which is inefficient and overly regulated.