Media Coverage and the Pricing of Audit Fees in China

• In Event: Determinants of Audit Fees

Abstract

This paper examines whether audit fees are associated with news coverage of clients. Using data from China’s listed firms during 2001-2009, we find that high coverage client firms are on average charged higher audit fees, ceteris paribus. This relationship is stronger for large auditors than for small auditors. While, for small auditors, the association is only for negative news coverage, for large auditors the association is positive regardless of the type of news coverage though it is stronger for negative news coverage. Overall, the evidence is supportive of the view that auditors perceive high coverage clients as higher risk audits requiring greater effort, due to the greater public interest embodied in high news coverage. The stronger response to bad news than good news is consistent with loss aversion posited by prospect theory.

Authors

• Stephen X. Gong, Hong Kong Polytechnic University

• Ferdinand A, Gul, Accounting and Finance Group, Monash University

• Liwei Shan, Southwestern University of Finance and Economics