The Market Premium for Audit Partners with Big 4 Experience
Accounting Horizons, Forthcoming
47 Pages Posted: 12 Dec 2017 Last revised: 28 Sep 2020
Date Written: September 15, 2020
This study investigates how non-Big 4 firm audit partners’ Big 4 experience is valued by the audit market. The Big 4 audit firms have differentiated themselves as nationally recognized firms for whose services companies are willing to pay a premium. It is unclear, however, whether this reputation follows individual auditors when they move to a non-Big 4 audit firm. We find that audit fees are higher for non-Big 4 audit partners with Big 4 experience with the fee premium ranging from 17 to 26 percent depending on the extent of experience when they are employed by small audit firms but find no evidence of a fee premium for Big 4 experience at the second-tier audit firms. Furthermore, in additional analyses, we do not find strong, consistent evidence that audit quality is higher for clients of non-Big 4 audit partners with Big 4 experience than their counterparts without Big 4 experience.
Keywords: auditor reputation, audit quality, audit fees, non-Big 4, Big 4 experience, audit partners
JEL Classification: M42
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