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JOURNAL OF ACCOUNTING AND FINANCE
Auditor Market Share and Industry Specialization of Non-Big 4 Firms
Author(s): Kun Wang, Sewon O, Zahid Iqbal, L. Murphy Smith
Citation: Kun Wang, Sewon O, Zahid Iqbal, L. Murphy Smith, (2011) "Auditor Market Share and Industry Specialization of Non-Big 4 Firms" Vol. 11, Iss. 2, pp. 107 - 127
Article Type: Research paper
Publisher: North American Business Press
Abstract:
This paper examines auditors’ market share and auditor dominance in China’s audit market with a focus on non-Big 4 auditors. We also examine the impact of auditor industry specialization on audit fees, and find that Big 4 audit firms earn fee premiums for both general brand name and industry specialization. Non-Big 4 specialized auditors, however, only earn fee premiums due to stronger industry specialization rather than general reputation. In addition, the non-Big 4 premium from industry expertise is much smaller than the specialization premium earned by Big 4 firms. Moreover, Non-Big 4 specialist auditors charge higher audit fees only for smaller clients. For larger clients, the fee premium disappears because of the bargaining power of large clients. Overall, our findings suggest that specialized audit firms in China adopt different pricing strategies based upon their market share and client characteristics. The results have important implications for audit firms as well as for the Chinese standard setters.
