Auditing Pricing and Audit Quality: The Influence of the Introduction of Price Competition

31 Pages Posted: 21 Oct 2003

See all articles by Kevan L. Jensen

Kevan L. Jensen

University of Oklahoma - John T. Steed School of Accounting

Jeff L. Payne

University of Kentucky - Von Allmen School of Accountancy

Date Written: September 2003

Abstract

This study examines the effects of the introduction of price competition on the market for audit services. Our results indicate that the removal of a competitive bidding restriction led to (1) lower audit fees, (2) audit firms using lowballing tactics to secure new clients, (3) audit firms bidding away expertise premia that existed under non-price competition, (4) Big 6 firms exiting the audit market, and (5) significant shifts in the audit market toward both new audit firms without prior municipal audit experience and established non-Big 6 firms in the municipal market.

Keywords: lowballing, audit quality, price competition, audit market regulation, audit fee

JEL Classification: M49, L84

Suggested Citation

Jensen, Kevan L. and Payne, Jeff L., Auditing Pricing and Audit Quality: The Influence of the Introduction of Price Competition (September 2003). Available at SSRN: https://ssrn.com/abstract=451500 or http://dx.doi.org/10.2139/ssrn.451500

Kevan L. Jensen

University of Oklahoma - John T. Steed School of Accounting ( email )

307 West Brooks
Norman, OK 73019-4004
United States

Jeff L. Payne (Contact Author)

University of Kentucky - Von Allmen School of Accountancy ( email )

Lexington, KY 40506
United States

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