Big 4 audit fee premiums for national‐ and city‐specific industry leadership in the UK: Additional evidence

Abstract

This study investigates the relationship between Big 4 auditor industry specialization and audit pricing in the UK in a period of many changes having taken place in the market for audit services. Using a large dataset between 2004 and 2011, our empirical results show a significantly higher fee premium for the Big 4 firms who are national industry leaders compared to city‐specific industry leaders, and that the fee premium for industry leadership is only earned by the city‐specific industry leaders if and when they are also the national leaders. Neither the national nor city level industry leadership alone is priced anymore in the UK audit market. These findings hold for the pre‐ and the post‐global‐financial‐crisis period only and for a number of additional analyses. The evidence suggests that the Big 4 industry leadership in the UK has moved away from the previously documented premium for the Big 4 city‐specific industry leadership alone, and is now driven solely by the joint Big 4 industry expertise at the national and city‐specific levels concurrently. The study's results indicate that there is a progression from city‐specific industry expertise to national‐specific industry expertise, and they imply that there has been an improvement in the sharing and transferability of industry knowledge and expertise among the city offices of the Big 4 firms in the UK in the period of investigation.