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City-level auditor industry specialization, economies of scale, and audit pricing

Fung, Simon Yu Kit, Gul, Ferdinand and Krishnan, Jagan 2012, City-level auditor industry specialization, economies of scale, and audit pricing, Accounting review, vol. 87, no. 4, pp. 1281-1307, doi: 10.2308/accr-10275.

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Title City-level auditor industry specialization, economies of scale, and audit pricing
Author(s) Fung, Simon Yu Kit
Gul, Ferdinand
Krishnan, Jagan
Journal name Accounting review
Volume number 87
Issue number 4
Start page 1281
End page 1307
Total pages 27
Publisher American Accounting Association
Place of publication Ann Arbor, Mich.
Publication date 2012-07
ISSN 1558-7967
Keyword(s) industry specilization
scale economies
audit pricing
client bargaining power
Social Sciences
Business, Finance
Business & Economics
industry specialization
SARBANES-OXLEY ACT
BIG 6 MERGERS
OFFICE SIZE
FEES
MARKET
QUALITY
PREMIUMS
DIFFERENTIATION
REPUTATIONS
Summary We examine the effects of city-level auditor industry specialization and scale economies on audit pricing in the United States. Using a sample of Big N clients for the 2000-2007 period, and a scale measure based on percentile rankings of the number of audit clients at the city-industry level, we document significant specialization premiums and scale discounts in both the pre- and post-Sarbanes-Oxley Act (SOX) periods. However, the effects of industry specialization and scale economies on audit pricing are highly interactive. The negative effect of city-industry scale on audit fees obtains only for clients of specialist auditors. By contrast, clients of non-specialist auditors obtain scale discounts only when they enjoy strong bargaining power, suggesting that auditors are "forced" to pass on scale economies to clients with greater bargaining power.
Language eng
DOI 10.2308/accr-10275
Field of Research 150103 Financial Accounting
1501 Accounting, Auditing And Accountability
Socio Economic Objective 970115 Expanding Knowledge in Commerce
HERDC Research category C1.1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2012, American Accounting Association
Persistent URL http://hdl.handle.net/10536/DRO/DU:30080011

Document type: Journal Article
Collection: Department of Accounting
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