| In views of DeAngelo (1981), auditor industry expertise is a industrial-related knowledge and expertise gained from audit practice or intended strategic specialization investment focused on one or a number of industries. In USA, auditor industry expertise has been an increasingly important business strategy and competition tactic since1990’s. In the meanwhile, the research on auditor industry specialization has been springing, in particular on the issue of audit pricing. Auditors’industry expertise is attracting more and more attention from researchers around the world and becoming a focus issue in literatures about auditing fees. Apart from auditor industry expertise, auditor size has also been proved another important factor in audit pricing based on the theory of economy of scale.In recent years, Chinese domestic audit firms have grown noticeably in terms of both size and competition, partly due to the strategy of "being bigger and stronger" pushed by the regulation institutions. In this contest, it is necessary to investigate how auditor industry expertise and auditor size would affect the audit fees. To be specific, whether the auditors’industry expertise premium does exist in current Chinese audit market or not? Any difference between the "Big4" and domestic auditor? As for the auditor size, how does it affect audit pricing? Does is means a discount factor since the audit firms may give away the cost saving to their client to some extent? In what conditions it will happen?On the basis of a series of theory analysis, using the data from listed companies in China’s A share market during2007to2012, after classifying all auditor firms into big4, big10and other firms, this thesis tests how auditors’industry expertise (measured by market share method) and auditor size (measured by the percentage of numbers of clients audited in a particular industry) will affect audit pricing. Consistent with prior researches, our results indicate that industry specialist auditors do earn significant premiums compared to non-specialist auditors. On the contrary, Scale is proved to be a discount factor in audit pricing-audit fees decrease by 0.266RMB for one percent increase in city-industry scale. In extended studies, we also find that big4experts can earn a larger premium than other big10experts in average, who earn more fees than "other firms" in average. This may suggests that apart from the specialization premium effect itself, auditor’s brand name interacts with auditors’ industry expertise, providing auditors a joint effect advantage in competition. Besides, I also find that scale discount varies from auditors with different brand name, from industry experts to non-experts, from clients with different bargaining power. It suggests the discount arising from auditors’economy of scales is not unconditional. The more disadvantage the auditors’competition status is, the more likely economy of scale would be given away, resulting in a discount in audit pricing.This thesis consists of below six parts:Part one, prelude. To introduce research meanings, research content and innovations and shortcomings.Part two, literature review. Including the measures of auditors’ industrial expertise and industrial economy of scale and their relationships with audit fees, respectively.Part three, theoretic analysis. To illustrate related theoretic basis (industrial organizational theory, economy of scale theory, Porter’s five forces model and reputation theory, etc.). Based on that, then to put up the hypothesis to test.Part four, research design. Including the data source, model design and measurement of variables.Part five, empirical tests. Consisting of descriptive analysis, correlative analysis, regression analysis and robust tests in total.Part six, conclusions To summarize the findings of this research. |
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