AbstractWe analyze theoretically and empirically the effect of preference policies, which favor some auditors over others for reasons unrelated to the audit. For example, an auditee may prefer minority-owned auditors, all else equal. We construct an analytical model of the competitive bidding process for audit services. We show that preference policies can sometimes improve the audit procurement process by encouraging price concessions from non-preferenced auditors. We test model predictions in a setting amenable to empirical identification of preference; many municipalities prefer local firms over more distant firms. We find strong evidence of local preference, with local firms earning a 13 percent fee premium over non-local firms. We show that audit fees depend not only on the winning firm's capabilities but also crucially on the winning firm's incremental capabilities over the next best alternative. Lastly, we identify conditions under which preference policies benefit audit procurement outcomes. JEL Classification: M42, D44, M48, H83 Key words: audit markets, auditor selection, competitive bidding, local preference
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Connecticut, Department of Economics in its series Working papers with number 2012-20.
Length: 29 pages
Date of creation: Feb 2012
Date of revision:
Contact details of provider:
Postal: University of Connecticut 341 Mansfield Road, Unit 1063 Storrs, CT 06269-1063
Phone: (860) 486-4889
Fax: (860) 486-4463
Web page: http://www.econ.uconn.edu/
More information through EDIRC
Find related papers by JEL classification:
- M42 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Auditing
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- M48 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Government Policy and Regulation
- H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Roberto Burguet & Martin Perry, 2002.
"Bribery and Favoritism by Auctioneers in Sealed Bid Auctions,"
Departmental Working Papers
200205, Rutgers University, Department of Economics.
- Burguet Roberto & Perry Martin K, 2007. "Bribery and Favoritism by Auctioneers in Sealed-Bid Auctions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-27, June.
- Roberto Burguet & Martin Perry, 2000. "Bribery and Favoritism by Auctioneers in Sealed Bid Auctions," Econometric Society World Congress 2000 Contributed Papers 1827, Econometric Society.
- Roberto Burguet & Martin K. Perry, 2008.
"Preferred Suppliers in Auction Markets,"
UFAE and IAE Working Papers
752.08, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- repec:wop:humbsf:2000-72 is not listed on IDEAS
- Estelle Cantillon, 2008.
"The effect of bidders' asymmetries on expected revenue in auctions,"
ULB Institutional Repository
2013/9001, ULB -- Universite Libre de Bruxelles.
- Cantillon, Estelle, 2008. "The effect of bidders' asymmetries on expected revenue in auctions," Games and Economic Behavior, Elsevier, vol. 62(1), pages 1-25, January.
- Estelle Cantillon, 2000. "The Effect of Bidders' Asymmetries on Expected Revenue in Auctions," Cowles Foundation Discussion Papers 1279, Cowles Foundation for Research in Economics, Yale University.
- Vlad Mares & Mikhael Shor, 2008. "Industry concentration in common value auctions: theory and evidence," Economic Theory, Springer, vol. 35(1), pages 37-56, April.
- Todd Kaplan & Shmuel Zamir, 2012. "Asymmetric first-price auctions with uniform distributions: analytic solutions to the general case," Economic Theory, Springer, vol. 50(2), pages 269-302, June.
- Mougeot, Michel & Naegelen, Florence, 2005. "A political economy analysis of preferential public procurement policies," European Journal of Political Economy, Elsevier, vol. 21(2), pages 483-501, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kasey Kniffin).
If references are entirely missing, you can add them using this form.