Competitive pressure, economies of scale, and auditor industry specialisation premium

Shenglan Chen and Hui Ma

China Journal of Accounting Studies, 2014, vol. 2, issue 2, 96-117

Abstract: This paper examines the premium due to auditor industry specialisation in China’s audit market. Using a sample of China’s listed firms from 2001 to 2011, we find that industry specialist auditors earn significant premiums at the province level. We also find that competitive pressure has a negative effect on the industry specialisation premium. Furthermore, we document that specialist auditors pass on lower cost savings from economies of scale to clients when facing greater competitive pressure. The results remain robust after controlling for the possible endogeneity issues and using different samples for sensitivity tests. Our results have important implications for future research on the auditor industry specialisation premium.

Date: 2014
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DOI: 10.1080/21697213.2014.926197

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