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Audit Firm Industry Sector Leader Geographic Location And Its Association With Audit Fees

Author

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  • Matthew Reidenbach
  • Katrina Wu

Abstract

This study tests whether an association exists between the geographic location of industry sector leaders in an auditing firm and differences in audit pricing for that same auditing firm’s industry clients. Using organizational learning theory and human capital theory, we predict that the industry-specific human capital of the audit partner in charge of an industry practice serves as a silo for this knowledge and provides an opportunity to charge a fee premium to their local clients. Using a hand collected dataset of partners overseeing industry-specific audit practices on audit firm websites, we provide evidence that a positive association exists between industry sector leaders’ office locations and audit fees for same-industry clients in that city. Building on prior research on the effect of individual audit partners and general human capital on audit quality, this study provides additional insight into the human capital of audit firm industry sector leaders and the dynamics of audit market competition

Suggested Citation

  • Matthew Reidenbach & Katrina Wu, 2018. "Audit Firm Industry Sector Leader Geographic Location And Its Association With Audit Fees," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 12(2), pages 117-130.
    • Handle: RePEc:ibf:ijbfre:v:12:y:2018:i:2:p:117-130
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    References listed on IDEAS

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    1. George P. Huber, 1991. "Organizational Learning: The Contributing Processes and the Literatures," Organization Science, INFORMS, vol. 2(1), pages 88-115, February.
    2. Mitchell A. Petersen & Raghuram G. Rajan, 2002. "Does Distance Still Matter? The Information Revolution in Small Business Lending," Journal of Finance, American Finance Association, vol. 57(6), pages 2533-2570, December.
    3. Paul Danos & John W. Eichenseher & Doris L. Holt, 1989. "Specialized knowledge and its communication in auditing," Contemporary Accounting Research, John Wiley & Sons, vol. 6(1), pages 91-109, September.
    4. Kevan Jensen & Jin-Mo Kim & Han Yi, 2015. "The geography of US auditors: information quality and monitoring costs by local versus non-local auditors," Review of Quantitative Finance and Accounting, Springer, vol. 44(3), pages 513-549, April.
    5. Numan, Wieteke & Willekens, Marleen, 2012. "An empirical test of spatial competition in the audit market," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 450-465.
    6. Argote, Linda & Ingram, Paul, 2000. "Knowledge Transfer: A Basis for Competitive Advantage in Firms," Organizational Behavior and Human Decision Processes, Elsevier, vol. 82(1), pages 150-169, May.
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    More about this item

    Keywords

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    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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