Product market competition and audit fees: new evidence

Hanyong Chung and Jae B. Kim

Managerial Auditing Journal, 2024, vol. 39, issue 6, 648-667

Abstract: Purpose - The purpose of this study is to examine the relation between product market competition and audit fees by using firm-level product market competition measures and mitigating the endogeneity issues. Design/methodology/approach - This study uses 12,136 US firms from 2004 and 2019. To ensure the robustness of the main findings, this study uses three firm-level product market competition measures and import trade tariff rate reductions of the USA as a quasi-natural experiment. This study also performs three cross-sectional tests and validation tests. Findings - This study demonstrates that there is a negative relation between product market competition and audit fees and establishes a causal relation. Moreover, it reveals that the findings become more pronounced when auditors possess industry-specific expertise, when client firms are younger, and when operating within more homogeneous industries. Additionally, a validation analysis supports the findings. Practical implications - This study offers significant insights for regulators by highlighting how product market competition plays a constructive role in overseeing firm management. Originality/value - The authors contribute to the existing literature by showing that there is a negative association between product market competition and audit fees after controlling external monitoring mechanisms. The authors also find the causal relation. These findings indicate that competitive pressures originating from product markets exert a significant influence on disciplining a client firm’s management.

Keywords: Product market competition; Audit fees; Corporate governance; External auditor; Audit risk; Business risk (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:majpps:maj-12-2023-4148

DOI: 10.1108/MAJ-12-2023-4148

Access Statistics for this article

Managerial Auditing Journal is currently edited by Professor Jie Zhou

More articles in Managerial Auditing Journal from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().