On the persistence and dynamics of Big 4 real audit fees: Evidence from the UK

Marek Kacer, David Peel, Michael Peel and Nicholas Wilson

Journal of Business Finance & Accounting, 2018, vol. 45, issue 5-6, 714-727

Abstract: Despite the huge audit pricing literature, there is a dearth of evidence on the temporal dynamics of audit fee adjustments and the persistence of audit fees. Based on a sample of 76,867 panel observations for a sample of UK companies audited by the Big 4 over the period 1998 to 2012, we employ consistent lagged dependent variable panel estimators to provide new evidence on the persistence and dynamics of real Big 4 audit fees. Contrary to extant research, which assumes that audit fees adjust immediately in a single period, our empirical results indicate that Big 4 real audit fees are persistent, being partly dependent on their previous realisations. We conclude that static audit fee models omit a potentially important temporal dimension of audit pricing behaviour and that further research is warranted into dynamic audit fee models across other jurisdictions.

Date: 2018
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