Abstract

http://ssrn.com/abstract=2196253
 
 

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Public Equity and Audit Pricing in the U.S.


Brad Badertscher


University of Notre Dame

Bjorn Jorgensen


London School of Economics & Political Science (LSE) - Department of Accounting

Sharon P. Katz


Columbia Business School - Accounting, Business Law & Taxation

William R. Kinney, Jr.


University of Texas at Austin - Department of Accounting

January 8, 2014

Journal of Accounting Research, 2014

Abstract:     
To what degree are audit fees for U.S. firms with publicly traded equity higher than fees for otherwise similar firms with private equity? The answer is potentially important for evaluating regulatory regime design efficiency and for understanding audit demand and production economics. For U.S. firms with publicly-traded debt, we hold constant the regulatory regime, including mandated issuer reporting and auditor responsibilities. We vary equity ownership and thus public securities market contextual factors, including any related public firm audit fees from increased audit effort to reduce audit litigation risk and/or pure litigation risk premium (litigation channel effects). In cross-section, we find that audit fees for public equity firms are 20% to 22% higher than fees for otherwise similar private equity firms. Time-series comparisons for firms that change ownership status yield larger percentage fee increases (decreases) for those going public (private). Results are consistent with litigation channel effects giving rise to substantial incremental audit fees for U.S. firms with public equity ownership.

Keywords: public and private firms, ownership structure, audit fees, litigation risk

JEL Classification: M41, M42, M44

Accepted Paper Series


Not Available For Download

Date posted: January 4, 2013 ; Last revised: January 10, 2014

Suggested Citation

Badertscher, Brad and Jorgensen, Bjorn and Katz, Sharon P. and Kinney, Jr., William R., Public Equity and Audit Pricing in the U.S. (January 8, 2014). Journal of Accounting Research, 2014. Available at SSRN: http://ssrn.com/abstract=2196253 or http://dx.doi.org/10.2139/ssrn.2196253

Contact Information

Brad Badertscher
University of Notre Dame ( email )
Mendoza College of Business
Notre Dame, IN 46556-5646
United States
Bjorn N Jorgensen
London School of Economics & Political Science (LSE) - Department of Accounting ( email )
Department of Accounting Room, OLD 2.17
Houghton Street
London, WC2A 2AE
United Kingdom
Sharon P. Katz
Columbia Business School - Accounting, Business Law & Taxation ( email )
3022 Broadway
New York, NY 10027
United States

William Kinney (Contact Author)
University of Texas at Austin - Department of Accounting ( email )
Austin, TX 78712
United States
512-471-3632 (Phone)
512-471-3904 (Fax)
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