An Examination of Factors Driving Big 4 Audit Fee Premiums: Evidence from India's Audit Market

Abstract

SYNOPSISThis study examines fee premiums earned by Big 4 auditors in India and identifies the primary reason for such fee premiums. There are three primary drivers of Big 4 fee premiums. Big 4 auditors charge a fee premium for their reputation, for providing a superior quality of audit, and for indemnifying losses for a company's stakeholders. Since the risk of auditor litigation in India is relatively low, Big 4 premiums in India would not be driven by the need for auditors to indemnify losses. The results indicate that Big 4 auditors earn significantly higher fees in India and also that their clients enjoy significantly higher earnings response coefficients compared to non-Big 4 clients. However, there is no difference in the quality of audit provided by Big 4 and non-Big 4 auditors as measured by the magnitude of reported discretionary accruals.