Article2013

The Risk Premium of Audit Fee: Evidence from the 2008 Financial Crisis

31 citations0/0 files storedChina Journal of Accounting Studies

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Auditing, Earnings Management, Governance Corporate Finance and Governance Corporate Governance and Financial Management

Abstract

This paper uses the 2008 financial crisis to examine the association between audit pricing and firm risk. The empirical analysis shows that when firm risk increased during the crisis, accounting firms charged more for their auditing services, supporting the risk premium of audit fee. An analysis of different industries presents a positive correlation between the audit fees and firm risk for export companies that were seriously shocked by the crisis. Further, compared with private firms, the audit fees of State-Owned Enterprises (SOEs) did not increase with firm risk under the crisis, due to the government’s bailout guarantee. Finally, the risk premium of audit fee was only found for companies audited by non-Big Four accounting firms.

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References

1981Auditor size and audit quality 1980The Pricing of Audit Services: Theory and Evidence 2006Political Connections and Corporate Bailouts 1993Auditing Standards, Legal Liability, and Auditor Wealth 2003The Association between Audit Committee Characteristics and Audit Fees 1984The effect of audit firm size on audit prices 1999The impact of improved auditor independence on audit market concentration in China 2008Audit pricing, legal liability regimes, and big 4 premiums: Theory and cross-country evidence

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