Peer Group and Audit Fees in Chinese Firms

57 Pages Posted: 16 Jan 2014

See all articles by Heibatollah Sami

Heibatollah Sami

Lehigh University

Haiyan Zhou

University of Texas - Pan American

Ferdinand A. Gul

Deakin University - Department of Accounting

Junxiong Fang

Fudan University - School of Management

Date Written: January 14, 2014

Abstract

Drawing on herding behavior theory, prior studies regarding the use of peers for investment decisions and compensation practices and the recent reports which suggest that firms use peer information for audit pricing, we examine the effect of peer groups on the audit pricing process of a sample of Chinese firms. Using observations for the years 2002-2012, and matching groups based on the Industry, Industry/Region, Industry/Big4 and Industry/Size to define peer group, we find that peer group information is used in audit pricing. We also find evidence that peer group information are more likely to be used in firms in low technology industry, less developed regions, and firms audited by non-Big 4 CPA firms compared to those in high technology industry, more developed regions, and firms audited by Big 4 CPA firms. Finally, we find that clients with lower audit fees than their peer groups in the previous period are more likely to increase audit fees in the current period. These are consistent with the herding theory that peer group information is most likely used in conditions when information asymmetry risk is high.

Keywords: audit fee, peer group, information asymmetry, audit clients, Big 4; Chinese firms

JEL Classification: M49

Suggested Citation

Sami, Heibatollah and Zhou, Haiyan and Gul, Ferdinand A. and Fang, Junxiong, Peer Group and Audit Fees in Chinese Firms (January 14, 2014). Available at SSRN: https://ssrn.com/abstract=2379139 or http://dx.doi.org/10.2139/ssrn.2379139

Heibatollah Sami (Contact Author)

Lehigh University ( email )

Bethlehem, PA 18015
United States
610-758-3407 (Phone)

Haiyan Zhou

University of Texas - Pan American ( email )

1201 West University Drive
Edinburg, TX 78539
United States
956-381-3334 (Phone)
956-381-2407 (Fax)

Ferdinand A. Gul

Deakin University - Department of Accounting ( email )

Melbourne
Australia

Junxiong Fang

Fudan University - School of Management ( email )

No. 670, Guoshun Road
No.670 Guoshun Road
Shanghai, 200433
China

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