Abstract
Audit fee studies often find large (Big 5) audit firms earn significantly higher fees than small (non-Big 5) firms, but they treat auditor choice as exogenous. In contrast, this paper takes into account that companies are not randomly assigned to audit firms. We find the effects of auditor selection bias on audit fees are statistically and economically significant. Consistent with the predictions of analytical research, our results suggest large (small) audit firms experience advantageous (adverse) selection in attracting high (low) quality companies. Our results indicate the premium earned by large audit firms is more than twice as large when selectivity effects are taken into account (53.4% compared to 19.2%).
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
