The Pricing of Industry Specialisation by Auditors in New Zealand

Accounting and Business Research, Forthcoming

Posted: 30 Mar 2012

See all articles by David Hay

David Hay

University of Auckland Business School

Debra C. Jeter

Vanderbilt University - Accounting

Date Written: November 25, 2010


A number of research papers present evidence of fee premiums paid to specialist auditors. In this paper, we explore for listed and unlisted New Zealand firms not only the question of whether such premiums exist, but perhaps more importantly why they exist. We find evidence of fee premiums for auditor specialisation defined at the city level but not at the national level. We extend testing to examine the issue of self-selection of auditors by clients; we examine several different industry classification schemes and a number of different specialisation measures; and we consider the issue of portfolio specialists. We find from these additional tests that self-selection does not account for the existence of specialisation premiums; various alternative classification schemes all result in premiums at the city level; and portfolio specialists also earn fee premiums when portfolio specialisation is measured at the city level. We find that these specialist premiums apply most consistently to larger client firms and to low-risk firms. We consider various explanations and conclude that this result is consistent with non-specialist auditors providing discounts to attract desirable clients. Desirable clients – those that are large or low risk – are not able to negotiate fees as successfully with auditors who have differentiated themselves via industry specialisation.

Keywords: Auditing, audit fees, auditor specialisation, differentiation in audit market

JEL Classification: L11, L12, L13, L84, M41

Suggested Citation

Hay, David and Jeter, Debra C., The Pricing of Industry Specialisation by Auditors in New Zealand (November 25, 2010). Accounting and Business Research, Forthcoming, Available at SSRN:

David Hay (Contact Author)

University of Auckland Business School ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand

Debra C. Jeter

Vanderbilt University - Accounting ( email )

Nashville, TN 37203
United States

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