Auditing Pricing and Audit Quality: The Influence of the Introduction of Price Competition
31 Pages Posted: 21 Oct 2003
Date Written: September 2003
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: Suggested Citation