The Jointness of Audit Fees and Demand for MAS: A Self-Selection Analysis
29 Pages Posted: 17 May 2014 Last revised: 3 May 2016
Date Written: 1990
This paper has two objectives: (1) providing a method to evaluate directly the costs (benefits) of knowledge spillovers arising from purchasing MAS from the incumbent auditor, and (2) examining the effect of estimates of the cost of auditor change on clients' ability to capture the resulting cost savings. The first is achieved by using self selection bias parameters estimated from switching regressions. The latter is based on data generated from clients' assessments of auditor change costs and the related economic conditions. For a sample of 84 companies, the results indicate that purchasing MAS from the incumbent auditor does not have a bearing on audit fees. The paper also provides an application of the Heckman-Lee method of correcting for self-selection bias.
Keywords: Audit Pricing, consulting fees, spillover effects, the Heckman method
JEL Classification: M42, L11, D23, D24, R32
Suggested Citation: Suggested Citation