Big Bath and Audit Pricing

• In Event: Audit Fees

Abstract

Big bath is used to describe transactions, such as large asset write-off and non-recurring charge. Prior baths’ literature has studied about firm’s information environment and financial performance. We focus on examining the consequences of bath reporting strategy from auditing prospect. Specifically, we test whether firms’ audit fee varies after a big bath. As a result, we find that audit fee increases by 12.4% when big bath is approached by Special Items; and it increases by 5.4% when it’s approached by Accruals. Also, we find the better corporate governance a firm has, the less positive relationship between an audit fee and a big bath.

Authors

• Heeick Choi, University of Massachusetts-Lowell

• Khondkar E Karim, University of Massachusetts-Lowell

• Anqi Tao, University of Massachusetts-Lowell

• Yiye Zhang, University of Massachusetts-Lowell