Simultaneous Estimation of the Supply and Demand of Differentiated Audits: Evidence from the Municipal Audit Market

Abstract

*University of Georgia. We wish to thank Linda Bamber, Michael Bamber, and Randal Elder for their helpful comments on an earlier draft of this paper. We also acknowledge the constructive suggestions of an anonymous referee. 1 Studies that investigate the supply-side determinants of audit fees include Palmrose [1986], Francis and Stokes [1986], Francis and Simon [1987], and Simon and Francis [1988]. Studies that investigate the demand-side determinants of auditor choice include Eichenseher and Shields [1986], Francis and Wilson [1988], Palmrose [1984], Rubin [1992], and Simunic and Stein [1987]. Some recent attempts to estimate supply and demand equations simultaneously include Banker, Cooper, and Potter [1992], Copley, Doucet, and Gaver [1994], and Deis and Giroux [1995]. Gaver and Gaver [1995] provide an analytical framework for simultaneous estimation of the supply and demand for multiattribute audits.