Abstract
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.
Original language | English |
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Pages (from-to) | 139-156 |
Number of pages | 18 |
Journal | Auditing |
Volume | 34 |
Issue number | 4 |
DOIs | |
Publication status | Published - 1 Jan 2015 |
Keywords
- Audit fees
- Audit risk
- Business risk
- Earnings management
- Product market competition
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics