On the Persistence and Dynamics of Big 4 Real Audit Fees: Evidence from the UK

Posted: 29 Dec 2016

See all articles by Marek Kacer

Marek Kacer

University of Leeds - Credit Management Research Centre (CMRC); Leeds University Business School (LUBS) - Accounting and Finance Division; University of Economics in Bratislava

David A. Peel

Lancaster University - Management School

Michael J. Peel

Cardiff University - Cardiff Business School

Nick Wilson

University of Leeds - Credit Management Research Centre; Leeds University Business School

Multiple version iconThere are 2 versions of this paper

Date Written: December 29, 2016

Abstract

Despite the huge audit pricing literature, there is a dearth of evidence on the temporal dynamics of audit fee adjustments and the persistence of audit prices. Based on a sample of 76,867 panel observations for a sample of UK listed and unlisted companies audited by the big 4 over the period 1998 to 2012, we employ consistent lagged dependent variable panel estimators to provide new evidence on the dynamics of real big 4 audit prices, together with their equilibrium convergence speed. Contrary to extant research, which assumes that audit fees adjust immediately into equilibrium in a single period, our empirical results indicate that real big 4 audit prices are persistent, being partly dependent on previous realisations of audit fees. We conclude that static audit fee models omit a potentially important temporal dimension of audit pricing behaviour and that further research is warranted in a wider context and across other jurisdictions.

Keywords: real audit fees, big 4, partial adjustment, persistence, adjustment speed, dynamic panel estimates, listed and unlisted companies

JEL Classification: M42, M49, C4, L11

Suggested Citation

Kacer, Marek and Peel, David Alan and Peel, Michael J. and Wilson, Nicholas, On the Persistence and Dynamics of Big 4 Real Audit Fees: Evidence from the UK (December 29, 2016). Available at SSRN: https://ssrn.com/abstract=2891298

Marek Kacer

University of Leeds - Credit Management Research Centre (CMRC) ( email )

Leeds, LS2 9JT
United Kingdom

Leeds University Business School (LUBS) - Accounting and Finance Division ( email )

Leeds LS2 9JT
United Kingdom

University of Economics in Bratislava ( email )

Dolnozemsk√° cesta 1
Bratislava, 852 35
Slovakia

David Alan Peel

Lancaster University - Management School ( email )

Bailrigg
Lancaster, LA1 4YX
United Kingdom
+44 (0)1524 593590 (Phone)
+44 (0)1524 594244 (Fax)

HOME PAGE: http://www.lancs.ac.uk/staff/peeld/

Michael J. Peel

Cardiff University - Cardiff Business School ( email )

Cardiff
United Kingdom

Nicholas Wilson (Contact Author)

University of Leeds - Credit Management Research Centre ( email )

Leeds LS2 9JT
United Kingdom
+44 (0)113 343 4472 (Phone)

Leeds University Business School ( email )

Leeds LS2 9JT
United Kingdom
+44 (0)113 343 4472 (Phone)

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