Are the Big 4 Firms Homogeneous?: Further Evidence From Audit Pricing

46 Pages Posted: 10 Nov 2018

See all articles by Karel Hrazdil

Karel Hrazdil

Simon Fraser University

Dan A. Simunic

University of British Columbia (UBC) - Sauder School of Business

Nattavut Suwanyangyuan

Simon Fraser University (SFU)

Date Written: October 15, 2018

Abstract

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 [1980]) 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

Hrazdil, Karel and Simunic, Dan A. and Suwanyangyuan, Nattavut, Are the Big 4 Firms Homogeneous?: Further Evidence From Audit Pricing (October 15, 2018). Available at SSRN: https://ssrn.com/abstract=3268924 or http://dx.doi.org/10.2139/ssrn.3268924

Karel Hrazdil (Contact Author)

Simon Fraser University ( email )

Faculty of Business Administration
8888 University Drive, Simon Fraser University
Burnaby, British Colombia V5A 1S6
Canada
778-782-6790 (Phone)
778-782-4920 (Fax)

HOME PAGE: http://www.sfubusiness.ca

Dan A. Simunic

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
416-486-5361 (Phone)
416-486-6158 (Fax)

Nattavut Suwanyangyuan

Simon Fraser University (SFU) ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

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