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
Date Written: December 16, 2009
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: Suggested Citation