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The effects of advertising and solicitation on audit fees

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  • Hay, David
  • Knechel, W. Robert

Abstract

Leading academic and professional accountants have suggested that the crisis in auditing over the past few years may have had its origin in deregulation which allowed firms to advertise their services and solicit new clients, encouraging accounting firms to become more commercial. In this paper, we look at this issue in New Zealand which has the unique distinction of having separated two key forms of deregulation, namely advertising and solicitation, by 6Â years. This allows us to separately examine the effect of each form of market competition on audit fees. We find that advertising is associated with increases in fees, not decreases, which suggests that quality-based advertising took place, and not price-based advertising. In contrast, solicitation corresponded with a general decrease in average fees for clients of the Big 8. We interpret this result as indicating an increase in competition among accounting firms. Our results suggest that there may be a much more complex relationship among market competition, advertising and solicitation, and fees than the arguments used to originally justify deregulation.

Suggested Citation

  • Hay, David & Knechel, W. Robert, 2010. "The effects of advertising and solicitation on audit fees," Journal of Accounting and Public Policy, Elsevier, vol. 29(1), pages 60-81, January.
  • Handle: RePEc:eee:jappol:v:29:y::i:1:p:60-81
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    Cited by:

    1. repec:eee:jiaata:v:29:y:2017:i:c:p:103-117 is not listed on IDEAS
    2. Gholamhossein Mahdavi & Abbas Ali Daryaei, 2016. "Auditing marketing and corporate governance," International Journal of Business Forecasting and Marketing Intelligence, Inderscience Enterprises Ltd, vol. 2(3), pages 190-214.
    3. Su, Xijia & Wu, Xi, 2017. "Public Disclosure of Audit Fees and Bargaining Power between the Client and Auditor: Evidence from China," The International Journal of Accounting, Elsevier, vol. 52(1), pages 64-76.
    4. repec:bla:acctfi:v:57:y:2017:i:3:p:657-679 is not listed on IDEAS
    5. Najihah Yaacob & Ayoib Che-Ahmad, 2012. "Audit Fees after IFRS Adoption: Evidence from Malaysia," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 2(1), pages 31-46, June.
    6. Lennox, Clive & Li, Bing, 2012. "The consequences of protecting audit partners’ personal assets from the threat of liability," Journal of Accounting and Economics, Elsevier, vol. 54(2), pages 154-173.

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