Are the Big 4 Firms Homogeneous?: Further Evidence From Audit Pricing
46 Pages Posted: 10 Nov 2018
Date Written: October 15, 2018
We provide new evidence on audit pricing differences within the Big 4 audit firms in the U.S. market. Specifically, we show that PricewaterhouseCoopers (PwC) consistently earns above-average audit fee premiums relative to the other Big 4 firms. The industry expertise research stream argues that an audit firm with greater competency will be able to differentiate itself from its competitors in terms of within-industry market share and charge an audit fee premium for its services. We find that PwC has maintained its leadership position as the market share leader across most industries in the U.S. market. More important, we also find that the evidence of an “industry specialist” audit fee premium is consistently observed for the group of PwC specialists, but not for the group of other (non-PwC) specialists. Thus, the existing literature appears to have confounded a generalized PwC fee premium (as was first observed by Simunic ) with an industry specialist fee premium in U.S. audit markets.
Keywords: Big 4 Auditors, Audit Fees, Auditor Industry Specialization
JEL Classification: M40, M42
Suggested Citation: Suggested Citation