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The Role of Competitive Bidding in the Market for Initial Attest EngagementsJean C. BedardBentley University - Department of Accountancy Michael EttredgeUniversity of Kansas - School of Business Karla M. JohnstoneUniversity of Wisconsin - Madison - Department of Accounting and Information Systems April 2001 Abstract: This paper investigates the effects of competitive bidding on clients' and service providers' decisions. We examine the determinants of clients' decisions to choose private negotiations (i.e., only one bidder) versus competitive bidding (i.e., multiple bidders) and the effect of that choice on the bidding firm's engagement planning and bid pricing decisions. The data used to conduct this examination include actual evaluations of prospective clients for whom the participating firm's personnel decided to issue an engagement bid during 1997 and 1998. Our findings reveal various cost-benefit tradeoffs involved in clients' decisions to choose private negotiations versus competitive bidding. Results also show that competitive bidding is associated with an increase in planned engagement effort, an increase in the use of quality-enhancing personnel allocations, and reduced fee rates.
Number of Pages in PDF File: 42 Keywords: Competitive bidding; Negotiation; Audit planning; Audit pricing JEL Classification: M49, D40 working papers seriesDate posted: January 13, 2000Suggested CitationContact Information
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