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Public equity and audit pricing in the United States

Badertscher, Brad A. , Jorgensen, Bjorn N. , Katz, Sharon and Kinney, William R. (2014) Public equity and audit pricing in the United States. Journal of Accounting Research, 52 (2). pp. 303-339. ISSN 0021- 8456

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Abstract

To what degree are audit fees for U.S. firms with publicly traded equity higher than fees for otherwise similar firms with private equity? The answer is potentially important for evaluating regulatory regime design efficiency and for understanding audit demand and production economics. For U.S. firms with publicly traded debt, we hold constant the regulatory regime, including mandated issuer reporting and auditor responsibilities. We vary equity ownership and thus public securities market contextual factors, including any related public firm audit fees from increased audit effort to reduce audit litigation risk and/or pure litigation risk premium (litigation channel effects). In cross-section, we find that audit fees for public equity firms are 20-22% higher than fees for otherwise similar private equity firms. Time-series comparisons for firms that change ownership status yield larger percentage fee increases (decreases) for those going public (private). Results are consistent with litigation channel effects giving rise to substantial incremental audit fees for U.S. firms with public equity ownership.

Item Type: Article
Official URL: http://onlinelibrary.wiley.com/journal/10.1111/(IS...
Additional Information: © 2014 University of Chicago on behalf of the Accounting Research Center
Library of Congress subject classification: H Social Sciences > HG Finance
Journal of Economic Literature Classification System: M - Business Administration and Business Economics; Marketing; Accounting > M4 - Accounting and Auditing > M42 - Auditing
Sets: Departments > Accounting
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Funders: PricewaterhouseCoopers, Mendoza College of Business
Date Deposited: 26 Mar 2014 09:32
URL: http://eprints.lse.ac.uk/56315/

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