Empirical Study On Audit Fee Premium

In recent years, the market share of “big four” international accounting firms inChina’s CPA industry has increased by leaps and bounds, the size of their operatingincome in the CPA industry has ranked in the very front position.Moreover，localaccounting firms, following accounting firms merger wave,have become bigger andstronger, not only increasing their market share in China, but also enhancing theiraudit quality.Under this macroeconomic context, studying whether big four majorinternational accounting firms and our local large accounting firms accept audit feepremium and to what extent has become a very important theoretical and practicalsubject.At the same time,from the prospective of the capital market, institutionalinvestors have become an indispensable force.Especially in recent years, institutionalinvestors continue to grow.Currently, institutional investors have become the top tenshareholders in more than half of the listed companies.In other words, institutionalinvestors and their stake have become important feature of audit object.Therefore, theproportion of institutional ownership of the audit object cannot be ignored in studyingthe audit fee premium.From specific point of view, the significance of the study lies in:Firstly,auditmarket is an important part of China’s securities market and the economic market, thestudy of China’s audit market not only contributes to the understanding of thecharacteristics of China’s audit market, but also helps understand China’s securitiesmarket and economic market.Secondly,audit fee is a key link in the auditing market and an important factor of it: audit fee is an important connection of audit subject andaudit object,it can show the cost structure of the audit procedure, tell the fair andreasonable price of audit object’s financial statement.Thirdly,the study can help theregulatory authorities to be better oversight the market:whether the fee is true and fairreflects the cost of the audit work,therefore,research on audit fee premium cancontribute to further developing more rational policies. Last but not least, theinfluence made by the scale of audit subject and the institutional ownershipproportionof audit object cannot be ignored.This article studies audit fee premium from both the audit subject perspectiveand the audit object perspective.The article conducts empirical research method andsensitivity test.The sample is chosen from capital market from2009to2011.In this paper, the basic conclusion of the study is:First, large-scale audit subjectcharges audit object audit fee premium,but the extent is different in various capitalmarkets. Specifically，big four international accounting firms charge large-scale auditobjects audit fee premium highest in SME capital market and GEM capitalmarket,lowest in Shenzhen main board capital market,and the local big fiveaccounting firms charge audit fee premium for large-scale objects just in Shanghaimain board capital market.Second, the larger the institutional ownershipproportion,the lower the audit fee.Third,the higher the institutional ownershipproportion, thelower the audit fee, but the level is lower when the audit subject is "big four"international accounting firms.In summary, the scale of audit subject and theinstitutional ownershipproportion of audit object are audit fee premium factors.The contribution of this paper is:on one hand, this article studies audit feepremium from both the audit subject perspective and the audit object perspective;onthe other hand,the article finds that market segment is one reason of different resultsgot by previous scholars before.In addition, this paper studies the impact ofinstitutional ownership proportion in the process of charging audit fee premium,whichwill enrich audit fee premium study.