Audit Pricing, Legal Liability Regimes, and Big 4 Premiums: Theory and Cross‐country Evidence *

Audit Pricing, Legal Liability Regimes, and Big 4 Premiums: Theory and Cross‐country Evidence * Contemporary Accounting Research Vol. 25 No. 1 (Spring 2008) pp. 55–99 © CAAA doi:10.1506/car.25.1.2 Contemporary Accounting Research et al. (2006), Chaney, Jeter, and Shivakumar (2005), and Simunic (1980) document no evidence of the premium, whereas Francis and Simon (1987) and Higgs and Skantz (2006) find mixed evidence on the existence of a Big firm premium depending on the regression models or samples used.1 In contrast, Ashbaugh, LaFond, and Mayhew (2003) report the existence of a significant premium. The mixed evidence on the existence and magnitude of a Big 4 premium across countries raises the following questions: Under what conditions do Big 4 auditors charge higher audit fees than non–Big 4 auditors? Why does previous research find a significant Big 4 premium in many countries, but mixed results for the United Kingdom or the United States? Are there any country-level, institutional factors that can explain the observed differences across countries? Our study seeks to shed light on these questions. Because the existing audit fee studies are normally conducted in single-country settings,2 they leave unresolved the question of what institutional factors drive cross-country variations in audit fees, and more specifically, how these factors influence the magnitude of the Big 4 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Contemporary Accounting Research Wiley

Audit Pricing, Legal Liability Regimes, and Big 4 Premiums: Theory and Cross‐country Evidence *

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Publisher
Wiley
Copyright
2008 Canadian Academic Accounting Association
ISSN
0823-9150
eISSN
1911-3846
D.O.I.
10.1506/car.25.1.2
Publisher site
See Article on Publisher Site

Abstract

Contemporary Accounting Research Vol. 25 No. 1 (Spring 2008) pp. 55–99 © CAAA doi:10.1506/car.25.1.2 Contemporary Accounting Research et al. (2006), Chaney, Jeter, and Shivakumar (2005), and Simunic (1980) document no evidence of the premium, whereas Francis and Simon (1987) and Higgs and Skantz (2006) find mixed evidence on the existence of a Big firm premium depending on the regression models or samples used.1 In contrast, Ashbaugh, LaFond, and Mayhew (2003) report the existence of a significant premium. The mixed evidence on the existence and magnitude of a Big 4 premium across countries raises the following questions: Under what conditions do Big 4 auditors charge higher audit fees than non–Big 4 auditors? Why does previous research find a significant Big 4 premium in many countries, but mixed results for the United Kingdom or the United States? Are there any country-level, institutional factors that can explain the observed differences across countries? Our study seeks to shed light on these questions. Because the existing audit fee studies are normally conducted in single-country settings,2 they leave unresolved the question of what institutional factors drive cross-country variations in audit fees, and more specifically, how these factors influence the magnitude of the Big 4

Journal

Contemporary Accounting ResearchWiley

Published: Mar 1, 2008

References

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