Audit Firm Mergers, Audit Pricing and Audit Quality

• In Event: Continental Breakfast and Research & Education Forum
  In Paper Session: Table 9: Audit Fees II

Abstract

This paper investigates the effect of Chinese audit firm mergers on audit pricing and audit quality. We find that audit firm mergers increase audit fees and improves audit quality at both industry level and firm level. Audit fees increase immediately after the merger, while it would take about one year for audit quality to improve after the merger. There is no change in audit fees and audit quality for mergers among big auditors, while audit fee increases and audit quality improves for mergers involving small auditors. Regional institutional environment also affects the impact of audit firm mergers on audit fees and audit quality. More specifically, audit fees increase more and audit quality improves more when the audit client is located in a region with better institutional environment. Collectively, the results of this paper indicate that the audit firm mergers have significant influence on audit pricing and audit quality in China.

Authors

• Baolei Qi, Xi'an Jiaotong University

• Jinghui Sun, Xi’an Jiaotong University

• Jian Zhou, University of Hawaii-Manoa