Audit Firm Ranking, Audit Quality and Audit Fees: Examining Conflicting Price Discrimination Views
Mohd-Saleh, Norman and
The International Journal of Accounting, 2018, vol. 53, issue 4, 295-313
In this study, we examine whether highly ranked audit firms in Iran, as determined by the Securities and Exchange Organization (SEO), earn a fee premium, firstly, by providing superior quality audit services or, secondly, due to reputation created by the ranking system implemented by the SEO. We employ price discrimination theory, and we test quality discrimination versus brand reputation explanations in the context of a unique institutional setting (where international audit firms are not allowed to operate). The data are derived from firms listed on the Tehran Stock Exchange (TSE) for the period 2006 to 2015. Our results show that the quality of audit services (using all of our measures) provided by the highest ranked audit firms is not superior to that of the non-highest ranked firms. In addition, the audit fee models suggest that the highest ranked firms charge significantly more audit fees compared to lower ranked firms. We employ several sensitivity tests and the results do not change materially. Such findings go against the “quality-based price discrimination” view but support the reputation-based view, and make a significant contribution towards understanding the economic consequences of state-determined ranking of audit firms rather than allowing the market to determine quality differentiation.
Keywords: Audit firm reputation; Audit quality; Audit fees; Iran (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:accoun:v:53:y:2018:i:4:p:295-313
Access Statistics for this article
The International Journal of Accounting is currently edited by A. R. Abdel-Khalik
More articles in The International Journal of Accounting from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().