Abstract
This study examines whether and to what extent risk-associated firms that are affiliated with a business group affect audit pricing decisions. The results indicate that auditors spend more audit hours and charge higher audit fees for group-affiliated firms than for other firms. Furthermore, when a group-affiliated client is economically important to auditors’ total revenue, higher audit fees are mainly explained by the increased audit effort. This suggests that the extent of the risk premium attached to group-affiliated firms may be limited by client firms’ bargaining power, especially in a competitive audit market such as Korea.
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