The Effect of Corporate Status on External Audit Fees: Evidence from the UK

33 Pages Posted: 1 Mar 2007

See all articles by Mark Clatworthy

Mark Clatworthy

University of Bristol, Department of Accounting and Finance

Michael J. Peel

Cardiff University - Cardiff Business School

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Abstract

This paper simultaneously examines, for the first time, the determinants of external audit fees of UK companies drawn from the quoted sector (Main Market, the Alternative Investment Market and Ofex), and the unquoted sector (public and private limited companies). The paper also provides new evidence on the effects of corporate failure and the persistence of the big four and mid-tier auditor premiums across the public and private corporate sectors. After controlling for firm size, audit risk and complexity, we find that quoted and unquoted public limited companies have significantly higher audit fees than their private limited counterparts. Our estimates imply that relative premiums for market/corporate form are as follows: Main Market over AIM, 6.8%; AIM over Ofex, 19.5%; Ofex over unquoted plc, 15.5%; and unquoted plc over private, 16.7%. However, despite indications in prior US research to the contrary, we find no evidence that insolvent firms that failed were charged higher audit fees in the year preceding failure. A positive relationship is also found between audit and consultancy fees - a result that persists using an instrumental variables approach to control for endogeneity.

Suggested Citation

Clatworthy, Mark A. and Peel, Michael J., The Effect of Corporate Status on External Audit Fees: Evidence from the UK. Journal of Business Finance & Accounting, Vol. 34, Nos. 1-2, pp. 169-201, January/March 2007. Available at SSRN: https://ssrn.com/abstract=966490 or http://dx.doi.org/10.1111/j.1468-5957.2006.00658.x

Mark A. Clatworthy (Contact Author)

University of Bristol, Department of Accounting and Finance ( email )

School of Economics, Finance and Management
8 Woodland Road
Bristol, BS8 1TN
United Kingdom
+44(0)1173310914 (Phone)

Michael J. Peel

Cardiff University - Cardiff Business School ( email )

Cardiff
United Kingdom

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