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

International Journal of Auditing, Vol. 24, No. 3, pp. 347-365, 2020

Posted: 10 Nov 2018 Last revised: 2 Oct 2020

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); Brock University - Goodman School of Business

Date Written: November 02, 2020

Abstract

We provide new evidence on audit pricing differences within the Big 4 audit firms in the U.S. market. Industry expertise research argues that an audit firm with greater competencies can differentiate itself from competitors in terms of within‐industry market share and charge an audit fee premium for its services. We show that while KPMG's average fee premium is smaller than those of other Big 4 audit firms, PricewaterhouseCoopers consistently earns an above‐average fee premium and has remained the market share leader across most U.S. industries. More importantly, the supposed effects of industry specialization on audit fees become statistically insignificant after controlling for individual pricing differences within the Big 4. Overall, we conclude that the Big 4 firms are not homogeneous in audit pricing, and that the literature has apparently confounded an individual audit firm reputational effect (as first observed by Simunic, 1980) with an industry specialist fee premium in the U.S. audit market.

Keywords: Big 4 Auditors, Audit Fees, Auditor Industry Specialization

JEL Classification: M40, M42

Suggested Citation

Hrazdil, Karel and Simunic, Dan A. and Suwanyangyuan, Nattavut and Suwanyangyuan, Nattavut, Are the Big 4 Firms Homogeneous? Further Evidence From Audit Pricing (November 02, 2020). International Journal of Auditing, Vol. 24, No. 3, pp. 347-365, 2020, 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

Brock University - Goodman School of Business ( email )

500 Glenridge Avenue
International Business and Strategy
St. Catherine's, Ontario L2S 3A1
Canada

Simon Fraser University (SFU) ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

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