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The determinants of the UK Big Firm premium

McMeeking, K. P., Peasnell, K. V. and Pope, Peter (2006) The determinants of the UK Big Firm premium. Accounting and Business Research, 36 (3). pp. 207-231. ISSN 0001-4788

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Identification Number: 10.1080/00014788.2006.9730022


Our study attempts to determine whether, and if so why, the large auditing firms are able to earn a premium on their audit work in the UK. We start by confirming the apparent existence of a Big Firm premium during the period 1985-2002. We examine industry specialisation, non-audit service fee and monopoly pricing explanations for the premium. The results of our tests of industry specialisation are mixed. There is little evidence that this premium is associated with industry specialisation when specialists are defined at the national level. Significant premia are observed if specialisation is defined at the city level, particularly if the auditor is the industry leader. However, when appropriate allowance is made for endogeneity. by modelling both audit and non-audit fees in a simultaneous equations framework, the Big Firm premium disappears. We find evidence to suggest that non-audit fees earned by auditors from their audit clients are positively related to the size of the audit fee and vice versa. Finally, when the sample is stratified by the size of audit client, we find no systematic evidence of anti-competitive pricing.

Item Type: Article
Official URL:
Additional Information: © 2007 Routledge
Divisions: Accounting
Subjects: H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G3 - Corporate Finance and Governance
Date Deposited: 23 Oct 2013 13:16
Last Modified: 04 Jan 2024 18:12

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