Auditor Specialization and Competitive Pressure in the Banking Industry: Effects on Audit Pricing and Bank Financial Statement Quality

• In Event: Continental Breakfast - Research and Education Forum
  In Roundtable Session: Table 8: Banking and Industry Specialization

Abstract

In this paper we examine whether bank auditors compete through industry specialization and are able to charge audit fee premiums and deliver superior audit quality. Prior research on auditor competition and specialization reports that specialist auditors charge price premiums and deliver higher quality, but that competitive pressure from close competitors has a negative impact on fees and quality. These studies, however, typically exclude the financial sector from the analysis even though banks are crucial to the operation of the economy. Based on a sample of US banks we find that bank auditors that are national specialists in the banking sector are able to charge premium prices. In addition competitive pressure from close competitors at the national level also seems to matter as it puts a downward pressure on bank audit fees. Despite the observed price effects, bank specialization and competitive pressure from close competitors does not seem to affect audit quality.

Authors

• Ines Simac, KU Leuven

• Marleen Willekens, KU Leuven