Auditor Bargaining Power and Audit Fee Lowballing

SUMMARY

Incoming auditors usually charge less audit fees to obtain the business (audit fee lowballing). Prior research shows that industry expert auditors have better expertise and resources to perform higher quality audit than the non-expert auditors. Consistent with this literature, we predict and find empirical evidence that the magnitude of lowballing will be significantly smaller for industry expert auditors comparing with non-experts auditors. This result adds new evidence of the impact of auditors’ barging power to the audit fee lowballing literature.