The Market Premium for Audit Partners with Big 4 Experience

• In Event: Audit Partner Expertise and Experience

Abstract

This study investigates how non-Big 4 firm audit partners’ Big 4 experience is valued by the audit market. The Big 4 audit firms have differentiated themselves as nationally recognized firms for whose services companies are willing to pay a premium. It is unclear, however, whether this reputation follows individual auditors when they move to a non-Big 4 audit firm. We use hand-collected U.S. partner data to examine whether companies pay a fee premium for audit partners with Big 4 experience. We find that non-Big 4 audit partners with Big 4 experience charge a fee
premium of approximately 21 percent when they are employed by small, non-second-tier audit
firms, but find no evidence of a fee premium for Big 4 experience at the second-tier audit firms. Furthermore, in additional analyses, we find no evidence that audit quality is higher for clients of non-Big 4 audit partners with Big 4 experience than their counterparts without Big 4 experience. Our results are robust to controlling for other partner characteristics.

Authors

• Aleksandra B Zimmerman, Northern Illinois University

• Kenneth L Bills, University of Arkansas

• Monika Causholli, University of Kentucky