Accounting Firms' Employee Satisfaction and Audit Fees

Abstract

In this study, we examine whether audit fees are associated with job satisfaction among accounting firms’ employees. We use novel data obtained from social media site Glassdoor.com and find negative associations between audit fees and accounting firms’ job satisfaction. Our results are robust to alternative measures of employee satisfaction and correct for potential endogeneity problems using 2SLS regression models with instrumental variables (IVs), audit office fixed effects, and changes analysis. Our additional analysis reveals that compared to former employees’ ratings, current employees’ ratings play a more important role in determining the pricing of audit services. Moreover, audit fees are higher for firms audited by accounting firms with greater employee satisfaction and providing more nonaudit services. We further find that employee satisfaction at any audit level is associated with lower audit fees. Our study extends the extant literature on employee satisfaction and provides useful information for accounting firms regarding the importance of employee satisfaction to audit fees.

Keywords: employee satisfaction; audit fees; employees’ feelings; employees’ ratings; Glassdoor

JEL Classification: M12; M41; M42; M51.