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Product market competition and audit fees

journal contribution
posted on 2024-09-20, 02:16 authored by Y Wang, ACW Chui
SUMMARY Existing theories posit two contradictory predictions on the relation between product market competition and audit fees. On the one hand, product market competition can mitigate agency problems between shareholders and managers and increase the accuracy of financial reporting, thus decreasing auditors' assessments of audit risk. Hence, auditors tend to charge lower fees to firms in a more competitive industry. On the other hand, product market competition can increase auditors' assessments of business risk. Therefore, audit fees are expected to increase with industry competitiveness. This study empirically tests the relation between product market competition and audit fees and finds that auditors charge more to firms in a more competitive industry. JEL Classifications: D4, G30, M41, M42.

History

Journal

Auditing

Volume

34

Pagination

139-156

ISSN

0278-0380

eISSN

1558-7991

Language

English

Publication classification

C1.1 Refereed article in a scholarly journal

Issue

4

Publisher

AMER ACCOUNTING ASSOC