Auditor Size, Auditor Quality, and Auditor Fee Premiums: Further Evidence from the Public Accounting Profession

Abstract

This paper extracts auditor quality from human capital (education, experience, certificate, training, and effort) and decomposes auditor size into three levels (large, medium, and small) to investigate whether there is a positive relationship between auditor size and auditor quality and to examine whether there is a premium between auditor quality and auditor fees. First, the positive relationship between auditor size and auditor quality of large audit firms is higher than that of small audit firms, but there is no difference between medium and small audit firms. Second, the positive relationship between auditor quality and auditor fees of large audit firms is higher than that of small audit firms, but there is no difference between medium and small audit firms. Overall, our empirical results support that auditor size as a proxy in measuring auditor quality and echo that large audit firms with higher auditor quality have auditor fee premiums.