Cross-Listing Audit Fee Premiums: Theory and Evidence

The Accounting Review, Vol. 84, pp. 1429-1463, 2009

Posted: 5 Jan 2006 Last revised: 7 Sep 2012

See all articles by Jong-Hag Choi

Jong-Hag Choi

Seoul National University - College of Business Administration

Jeong-Bon Kim

City University of Hong Kong

Xiaohong Liu

The University of Hong Kong

Dan A. Simunic

University of British Columbia (UBC) - Sauder School of Business

Date Written: December 16, 2009

Abstract

We study the effects of cross-listings on audit fees. We first develop a model in which legal environments play a crucial role in determining the auditor’s legal liability. Our model and analysis predict that auditors charge higher fees for firms that are cross-listed in countries with stronger legal regimes than they do for non-cross-listed firms and that the cross-listing audit fee premium increases with the difference in the strength of legal regimes between the cross-listed foreign country and the home country. We then empirically test these predictions. The results of our cross-country regressions strongly support our predictions. In addition, we find no significant cross-listing fee premium for firms that are cross-listed in countries whose legal regimes are no stronger than those of their home countries. This suggests that cross-listing audit fee premiums are associated with increased legal liability and not with increased audit complexity per se. Our findings help explain why cross-listing premiums occur and what determines their magnitude.

Keywords: Cross-listing, Audit fee, Legal regime, Audit quality

JEL Classification: G3, K2, M4

Suggested Citation

Choi, Jong and Kim, Jeong-Bon and Liu, Xiaohong and Simunic, Dan A., Cross-Listing Audit Fee Premiums: Theory and Evidence (December 16, 2009). The Accounting Review, Vol. 84, pp. 1429-1463, 2009, Available at SSRN: https://ssrn.com/abstract=873825

Jong Choi

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

Jeong-Bon Kim

City University of Hong Kong ( email )

Department of Accountancy
83 Tat Chee Avenue
Kowloon Tong
Hong Kong
852-3442-7909 (Phone)

Xiaohong Liu

The University of Hong Kong ( email )

School of Business
The University of Hong Kong
Hong Kong

Dan A. Simunic (Contact Author)

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)

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