Audit pricing and the Big4 fee premium: evidence from Belgium
Purpose – The purpose of this paper is to study audit pricing and the Big4 fee premium in Belgium. While a number of studies have already explored these issues, the Belgian audit market provides an interesting setting to gain an additional insight into the pricing of audit services for many reasons (e.g. audit market concentration in Belgium is much lower than in other countries, the Belgian audit market mainly consists of non-listed firms, etc.). Design/methodology/approach – Besides the traditional audit fee model, based on seminal work by Simunic, the paper also estimates regression models in which the author allows coefficients to vary across Big4 and non-Big4 auditors and control for self-selection (based on a two-stage procedure). Findings – Using the traditional audit fee model, results suggest that Big4 auditors receive (or are able to charge) a fee premium compared to non-Big4 auditors. Nevertheless, when the author allows regression coefficients to vary across Big4 and non-Big4 auditors and control for self-selection, the aforementioned finding does no longer hold. The results reveal differences in fee structures between Big4 and non-Big4 auditors and suggest that Big4 auditors consider a richer set of variables when setting their fees. Research limitations/implications – Since Belgian firms are only required to disclose audit fees as from 2007 onwards, the analyses are based on data for one year only. Practical implications – An important implication, at least from an academic point of view, is that the results clearly illustrate and corroborate the need to control for self-selection when modelling audit fees (while this issue has been ignored by recent audit fee studies). The findings also have implications for the (Belgian) auditing profession. For example, the fact that significant differences are observed in audit pricing between the Big4 and non-Big4 firms may have an impact on the (Belgian) audit services market (e.g. it might influence the competitive nature of the tendering process). Originality/value – Using a two-stage procedure, the results corroborate the need to control for self-selection in modeling audit fees (an issue that has been largely ignored in the audit fee literature). In addition, the results reveal that Big4 and non-Big4 auditors have different fee structures and that it is therefore important to allow the regression coefficients (and not only the intercept) to vary across both groups. Finally, the findings add to the very scarce evidence on audit pricing for non-listed firms.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 25 (2010)
Issue (Month): 2 (February)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com |
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=maj Email:
References listed on IDEAS
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.:
- James S. Ang & Rebel A. Cole & James Wuh Lin, 2000. "Agency Costs and Ownership Structure," Journal of Finance, American Finance Association, vol. 55(1), pages 81-106, 02.
- Mark A. Clatworthy & Michael J. Peel, 2007. "The Effect of Corporate Status on External Audit Fees: Evidence From the UK," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(1-2), pages 169-201.
- Meshari O. Al-Harshani, 2008. "The pricing of audit services: evidence from Kuwait," Managerial Auditing Journal, Emerald Group Publishing, vol. 23(7), pages 685-696, July.
- Craswell, Allen T. & Francis, Jere R. & Taylor, Stephen L., 1995. "Auditor brand name reputations and industry specializations," Journal of Accounting and Economics, Elsevier, vol. 20(3), pages 297-322, December.
- Nathalie Gonthier-Besacier & Alain Schatt, 2006. "Determinants of Audit Fees for French Quoted Firms," Working Papers CREGO 1060301, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.
- Titman, Sheridan & Trueman, Brett, 1986. "Information quality and the valuation of new issues," Journal of Accounting and Economics, Elsevier, vol. 8(2), pages 159-172, June.
- Dye, Ronald A, 1993. "Auditing Standards, Legal Liability, and Auditor Wealth," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 887-914, October.
- Datar, Srikant M. & Feltham, Gerald A. & Hughes, John S., 1991. "The role of audits and audit quality in valuing new issues," Journal of Accounting and Economics, Elsevier, vol. 14(1), pages 3-49, March.
- Willekens, Marleen & Achmadi, Christina, 2003. "Pricing and supplier concentration in the private client segment of the audit market: Market power or competition?," The International Journal of Accounting, Elsevier, vol. 38(4), pages 431-455.
- Willekens, Marleen, 2003. "Reply to discussion of "Pricing and supplier concentration in the private client segment of the audit market: Market power or competition?"," The International Journal of Accounting, Elsevier, vol. 38(4), pages 461-464.
- Charles Piot, 2001. "Agency costs and audit quality: evidence from France," European Accounting Review, Taylor & Francis Journals, vol. 10(3), pages 461-499.
- Heidi Vander Bauwhede & Marleen Willekens, 2004. "Evidence on (the lack of) audit-quality differentiation in the private client segment of the belgian audit market," European Accounting Review, Taylor & Francis Journals, vol. 13(3), pages 501-522.
- DeAngelo, Linda Elizabeth, 1981. "Auditor size and audit quality," Journal of Accounting and Economics, Elsevier, vol. 3(3), pages 183-199, December.
When requesting a correction, please mention this item's handle: RePEc:eme:majpps:v:25:y:2010:i:2:p:122-139. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Louise Lister)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.