Big 4 Audit Fee Premiums for National and Office-Level Industry Leadership in the United Kingdom

Abstract

The pricing of Big 4 industry leadership is examined for a sample of U.K. publicly-listed companies, and adds to the evidence from the Australian and U.S. audit markets that city-specific industry leadership commands a fee premium. There is a significant fee premium for city-specific industry leaders relative to other Big 4 auditors, but no evidence that either the top-ranked or second-ranked firm nationally commands a fee premium relative to other Big 4 auditors, after controlling for city-level industry leadership. We also test for Big 4 fee premiums relative to non-Big 4 auditors and the U.K. data suggest a three-level hierarchy based on audit fee differentials: (1) Big 4 city-specific industry leaders have the largest fees; (2) other Big 4 auditors (noncity leaders) and second-tier national firms have comparable fees that are lower than Big 4 city leaders but larger than third-tier firms; and (3) third-tier accounting firms have the lowest fees.