The Market Premium for Audit Partners with Big 4 Experience
54 Pages Posted: 12 Dec 2017 Last revised: 17 Feb 2019
Date Written: February 13, 2019
This study investigates how a partner’s Big 4 experience is valued by the non-Big 4 audit firm 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 use hand-collected U.S. partner data to examine whether companies pay a fee premium for audit partners with Big 4 experience. We find that non-Big 4 audit partners with Big 4 experience charge a fee premium of approximately 21 percent when they are employed by small, non-second-tier audit firms, but find no evidence of fee premium for Big 4 experience at the second-tier audit firms. In additional analyses, we do not find that audit quality is higher for clients of non-Big 4 audit partners with Big 4 experience than their counterparts without Big 4 experience which is inconsistent with this premium being driven by performance.
Keywords: auditor reputation, audit quality, audit fees, non-Big 4, Big 4 experience, audit partners
JEL Classification: M42
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