City-Level Auditor Industry Specialization, Economies of Scale, and Audit Pricing
Fung, Simon Yu Kit, Gul, Ferdinand A., Krishnan, Jagan
The Accounting Review · 2012 · Volume 87 · Issue 4
Abstract
We examine the effects of city-level auditor industry specialization and scale economies on audit pricing in the United States. Using a sample of Big N clients for the 2000–2007 period, and a scale measure based on percentile rankings of the number of audit clients at the city-industry level, we document significant specialization premiums and scale discounts in both the pre- and post-Sarbanes-Oxley Act (SOX) periods. However, the effects of industry specialization and scale economies on audit pricing are highly interactive. The negative effect of city-industry scale on audit fees obtains only for clients of specialist auditors. By contrast, clients of non-specialist auditors obtain scale discounts only when they enjoy strong bargaining power, suggesting that auditors are “forced” to pass on scale economies to clients with greater bargaining power. Data Availability:Data are available from sources identified in the article.
Keywords
industry specialization, scale economies, audit pricing, client bargaining power
Enable JavaScript for citation tools and additional paper interactions.