||Auditor Industry Expertise, Legal Environment, and Audit Pricing：Further Evidence from China Audit Market
||Department of Accountancy
This paper examines the audit pricing of national and city audit specialization in China at both firm and partner level. In particular, we investigate the influence of local province’s legal strength on the audit pricing of audit specialization. Using 3,266 firm-year observations post financial crisis, we find that specialized audit firms and auditors at city level and at national and city level jointly are associated with higher audit fees, controlling for other determinants of audit fees. Further, the audit fee premiums for specialized audit firms increase with the legal strictness of different provinces. However, legal strength does not have significant effect on the audit fee premiums for specialized individual auditors. Overall, our findings suggest that although specialized audit firms and individual auditors charge for higher audit fees, they may have differential attitude toward the variation in litigation risk.
1. Introduction ....... p.1
2. Background, Literature Review, and Hypothesis Development ....... p.3
2.1 Audit Market and Local Governments in China ....... p.4
2.2 Industry Expertise, Audit Quality, and Audit Fees ....... p.5
2.3 Industry Expertise and Legal Environment in China ....... p.8
3. Data and Research Method ....... p.11
3.1 Measurements of Specialized Audit Firms and Individual Auditors ....... p.11
3.2 Empirical Models ....... p.13
3.3 Data ....... p.17
4. Empirical Results ....... p.17
4.1 Descriptive Statistics ....... p.18
4.2 Regression Results ....... p.18
4.3 Additional Analyses ....... p.20
5. Conclusions, Limitations and Future Research Avenues ....... p.22
Reference ....... p.25
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