The Market Premium for Audit Partners with Big 4 Experience
54 Pages Posted: 12 Dec 2017 Last revised: 15 Sep 2019
Date Written: September 13, 2019
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 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 10 percent when they are employed by small, non-second-tier 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 find no 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. Our results are robust to controlling for other partner and audit firm characteristics.
Keywords: auditor reputation, audit quality, audit fees, non-Big 4, Big 4 experience, audit partners
JEL Classification: M42
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