Abstract
A large body of research in sociology and management presumes that lower costs are one of the most significant advantages that high-status firms enjoy. Although prior research provides some support for this argument, the evidence is limited and largely indirect. In order to better understand the relationship between a firm’s status and the costs it incurs, we analyze fees paid by clients in the $60 billion U.S. market for audit services. Contrary to the predictions of existing theory, we find that high-status firms tend to pay more than their peers, even after controlling for the complexity and riskiness of the audit. Our analyses suggest that the most likely explanation centers around the role of status in attracting disproportionate attention; auditors seem to charge their high-status firms more in anticipation of the increased attention that they suspect such firms will garner in cases of misconduct.
Published Version
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