Auditor industry specialisation, service bundling and partner effects in a mining-dominated city

This study examines auditor industry specialisation effects in Perth, a remote mining town in Australia characterised by a large number of small, homogeneous firms. We consider the impact of leadership by the non-Big 4 auditor BDO Kendalls (BDO) for a sample of 371 mining development stage entities (MDSE's). After controlling for factors known to determine audit fees, we find no evidence of auditor industry leadership fee premiums accruing to (BDO), a result robust to a range of sensitivity tests including the broadening of tests Australia-wide. However, when the dependent variable is redefined to the total 'bundle' of services provided by the audit firm (including audit and non-audit fees), the industry leader is shown to earn a fee premium suggesting BDO uses audits as a conduit to supply higher margin non-audit services. Our findings suggest that strategic pricing by industry leaders may not be confined to Big 4 firms.