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Self-Selection of Auditors and Audit Pricing in Private Firms

The Accounting review, 2004-01, Vol.79 (1), p.51-72 [Peer Reviewed Journal]

Copyright 2004 American Accounting Association ;COPYRIGHT 2004 American Accounting Association ;Copyright American Accounting Association Jan 2004 ;ISSN: 0001-4826 ;EISSN: 1558-7967 ;DOI: 10.2308/accr.2004.79.1.51 ;CODEN: ACRVAS

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Title:
Self-Selection of Auditors and Audit Pricing in Private Firms
Author: Chaney, Paul K. ; Jeter, Debra C. ; Shivakumar, Lakshmanan
Subjects: Accountants ; Accounting and auditing ; Accounting firms ; Auditing ; Auditing profession ; Auditors ; Audits ; Business accounting ; Business audits ; Business structures ; Business studies ; Coefficients ; Contracts ; Economic models ; Enterprises ; Fees ; Financial audits ; Linear regression ; Prices and rates ; Pricing ; Professional fees ; Publicly held corporations ; Regression coefficients ; Sales taxes ; Studies ; Tax audits ; Variable coefficients
Is Part Of: The Accounting review, 2004-01, Vol.79 (1), p.51-72
Description: Prior research has examined audit pricing for publicly held firms and provided some evidence of a Big 8 premium in pricing. We investigate audit pricing among private firms, and provide evidence that private firms do not pay such a premium on average. The relatively greater degree of dispersion in auditor choice (between Big 5 and non-Big 5 auditors) in our large sample of privately held audit clients allows us to predict the auditor choice for each firm and to control for potential self-selection. We reject the null hypothesis that clients are randomly allocated across Big 5 and non-Big 5 auditors. Using standard OLS regressions, we document a Big 5 premium; however this premium vanishes once we control for self-selection bias. Moreover, we find that client firms choosing Big 5 auditors generally would have faced higher fees had they chosen non-Big 5 auditors, given their firm-specific characteristics. Our results are consistent with audit markets for private firms being segmented along cost-effective lines. Further, our results suggest that auditees in our setting do not, on average, view Big 5 auditors as superior in terms of the perceived quality of the services provided to a degree significant enough to warrant a fee premium.
Publisher: Sarasota: American Accounting Association
Language: English
Identifier: ISSN: 0001-4826
EISSN: 1558-7967
DOI: 10.2308/accr.2004.79.1.51
CODEN: ACRVAS
Source: ProQuest Central

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Self-Selection of Auditors and Audit Pricing in Private Firms

Copyright 2004 American Accounting Association ;COPYRIGHT 2004 American Accounting Association ;Copyright American Accounting Association Jan 2004 ;ISSN: 0001-4826 ;EISSN: 1558-7967 ;DOI: 10.2308/accr.2004.79.1.51 ;CODEN: ACRVAS

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