Pricing Strategies of Big4 and Non-Big4 Auditors in the Light of Audit Tendering

40 Pages Posted: 18 Mar 2019 Last revised: 19 Jun 2019

See all articles by Matthias Baumann

Matthias Baumann

University of Hamburg

Nicole V.S. Ratzinger-Sakel

University of Hamburg

Thorben Tiedemann

University of Hamburg

Date Written: February 26, 2019

Abstract

This study empirically investigates the effects of mandatory audit tendering on audit pricing. Specifically, we examine audit pricing strategies potentially applied by Big4 and non-Big4 auditors when facing a tender for the upcoming period. Our study is motivated by the recent implementation of mandatory audit tendering in the European Union. Using a sample of 496 firm-year observations related to listed German companies, our results suggest that Big4 auditors facing a tender for the upcoming period charge higher audit fees than Big4 auditors not facing a tender, while a similar fee effect is not observable for non-Big4 auditors. In additional analyses, we do not find that Big4 auditors facing a tender for the upcoming period provide higher audit quality as measured by the extent of earnings management than Big4 auditors not facing a tender. In contrast, non-Big4 auditors allow more extensive earnings management when facing a tender for the upcoming period. Overall, our findings suggest that Big4 auditors apply strategies focussing on audit pricing, while non-Big4 auditors use alternative ways to deal with mandatory audit tendering. Our study is, to the best of our knowledge, the first study that examines the effect of audit tenders for upcoming periods on audit pricing.

Keywords: audit tendering, audit pricing strategies, audit fees, audit regulation

JEL Classification: L1, L11, M4, M42, M48

Suggested Citation

Baumann, Matthias and Ratzinger-Sakel, Nicole V.S. and Tiedemann, Thorben, Pricing Strategies of Big4 and Non-Big4 Auditors in the Light of Audit Tendering (February 26, 2019). Available at SSRN: https://ssrn.com/abstract=3342408 or http://dx.doi.org/10.2139/ssrn.3342408

Matthias Baumann

University of Hamburg

Moorweidenstrasse 18
Hamburg, 20148
Germany

Nicole V.S. Ratzinger-Sakel

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

Thorben Tiedemann (Contact Author)

University of Hamburg

Moorweidenstrasse 18
Hamburg, Hamburg 20148
Germany

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