The Role of Competitive Bidding in the Market for Initial Attest Engagements
42 Pages Posted: 13 Jan 2000
Date Written: April 2001
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.
Keywords: Competitive bidding; Negotiation; Audit planning; Audit pricing
JEL Classification: M49, D40
Suggested Citation: Suggested Citation