Audit Firm Industry Sector Leader Geographic Location and Its Association With Audit Fees

The International Journal of Business and Finance Research, v. 12 (2) p. 117-130, 2018

14 Pages Posted: 28 Feb 2019

See all articles by Matthew Reidenbach

Matthew Reidenbach

Pace University - Lubin School of Business

Katrina Wu

PricewaterhouseCoopers LLC

Date Written: 2018

Abstract

This study tests whether an association exists between the geographic location of industry sector leaders in an auditing firm and differences in audit pricing for that same auditing firm’s industry clients. Using organizational learning theory and human capital theory, we predict that the industry-specific human capital of the audit partner in charge of an industry practice serves as a silo for this knowledge and provides an opportunity to charge a fee premium to their local clients. Using a hand collected dataset of partners overseeing industry-specific audit practices on audit firm websites, we provide evidence that a positive association exists between industry sector leaders’ office locations and audit fees for same-industry clients in that city. Building on prior research on the effect of individual audit partners and general human capital on audit quality, this study provides additional insight into the human capital of audit firm industry sector leaders and the dynamics of audit market competition.

Keywords: Audit Firm Structure; Audit Pricing; Human Capital

JEL Classification: J24; M12; M42

Suggested Citation

Reidenbach, Matthew and Wu, Katrina, Audit Firm Industry Sector Leader Geographic Location and Its Association With Audit Fees (2018). The International Journal of Business and Finance Research, v. 12 (2) p. 117-130, 2018. Available at SSRN: https://ssrn.com/abstract=3241749

Matthew Reidenbach (Contact Author)

Pace University - Lubin School of Business ( email )

1 Pace Plaza
New York, NY 10038-1502
United States

Katrina Wu

PricewaterhouseCoopers LLC ( email )

Register to save articles to
your library

Register

Paper statistics

Downloads
29
Abstract Views
416
PlumX Metrics