The Role of Competitive Bidding in the Market for Initial Attest Engagements
Jean C. Bedard
Bentley University - Department of Accountancy
University of Kansas - School of Business
Karla M. Johnstone
University of Wisconsin - Madison - Department of Accounting and Information Systems
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, D40working papers series
Date posted: January 13, 2000
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