The Effect of Audit Market Deregulation on the Pricing of Brand Name Reputation

21 Pages Posted: 14 Feb 1997

See all articles by Allen T. Craswell

Allen T. Craswell

University of Queensland - Business School

Jere R. Francis

Maastricht University

Stephen L. Taylor

University of Technology Sydney (UTS) - School of Accounting; University of Technology Sydney; Centre for International Finance and Regulation (CIFR)

Abstract

Between 1982 and 1987, the Australian audit market experienced an increase in price competition resulting from changes in professional rules governing advertising and marketing practices as well as the introduction of widespread audit tendering. Because these changes are generally assumed to have reduced any alleged ability of the Big Eight to earn oligopoly profits, they provide an opportunity to test alternative explanations for the observed Big Eight audit-fee premia. If the market was not competitive, the Big Eight premium may be the result of market imperfections and the changes in professional rules could be expected to lead to a decline in the premia. Alternatively, if the market was competitive and the premia were attributable to product differentiation, it would be sustainable notwithstanding deregulation of the market. The initial analysis of panel data of publicly reported audit fees for a six-year period suggests that reductions in real audit fees are more marked among Big Eight clients and occur more quickly in response to a change of auditor. However, using seemingly unrelated regression it appears that structural adjustments were made to the audit-fee process and the Big Eight premium did not decline over the six year period. This result does not support allegations that Big Eight fee premia result from a relatively uncompetitive audit market.

JEL Classification: M40, M49, L13, L84

Suggested Citation

Craswell, Allen T. and Francis, Jere R. and Taylor, Stephen L., The Effect of Audit Market Deregulation on the Pricing of Brand Name Reputation. Available at SSRN: https://ssrn.com/abstract=1812 or http://dx.doi.org/10.2139/ssrn.1812

Allen T. Craswell (Contact Author)

University of Queensland - Business School ( email )

Jere R. Francis

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Stephen L. Taylor

University of Technology Sydney (UTS) - School of Accounting

P.O. Box 123
Broadway NSW 2007
Australia
+612 9514 3437 (Phone)

University of Technology Sydney ( email )

UTS Business School
PO Box 123 Broadway
Sydney, NSW 2007
Australia
61295143437 (Phone)
61295143513 (Fax)

Centre for International Finance and Regulation (CIFR) ( email )

Level 7 UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

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