Abstract
Abstract: the focus of this study is on the changes in the market of audit services after the regulatory regime change brought by the Sarbanes-Oxley Act. I specifically focus on how the annual audit fee changes have been different between the Big 4 and non-Big 4 firms, and the effect of compliance with Section 404(b) on the fee growth in the post-SOX period. Prior research which focused on the impact of the litigation/regulatory regime change on the Big 4/non-Big 4 dichotomy provided conflicting results, and has not considered the effects of Section 404(b). The results show that 1) after the Act the Big 4 have increased their fees at a higher rate, suggesting an increase in the Big 4 fee premium over time 2) companies which do not comply with Section 404(b) are facing much larger annual fee increases; 3) the Big 4 premium increase is primarily evident for the companies which do not comply with Section 404(b). The results suggest an unintended consequence of the Act, because the Big 4 have been able to strengthen their market position by further increasing their fees. The results also suggest the Section 404(b) is a key component in understanding trends in audit fees as well as the Big4/non-Big 4 dichotomy.
Published Version
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