Public Equity and Audit Pricing in the United States


  • Accepted by Douglas Skinner. We are grateful for constructive comments from Chris Armstrong, Dirk Black, Jeff Burks, Matt Cain, Qi Chen, Dain Donelson, Richard Frankel, Jim Fuehrmeyer, Dan Givoly, Katherine Gunny, Alan Jagolinzer, Sudarshan Jayaraman, Menon Krishnagopal, Eva Labro, Wayne Landsman, Mark Lang, Stephannie Larocque, Xiumin Martin, Doron Nissim, Per Olsson, Zoe-Vonna Palmrose, Steve Pischke, Nicholas Polson, Jana Raedy, Dave Ricchiute, Gil Sadka, Katherine Schipper, Doug Shackelford, Laura Simmons, Tom Stober, Jennifer Sustersic, Jennifer Tucker, Sandra Vera-Munoz, Mike Wilkins, Mike Willenborg, and seminar participants at the University of Colorado Boulder, University of Connecticut, Duke University, University of Melbourne, University of North Carolina, University of Notre Dame, Temple University, University of Texas at San Antonio, Washington University in St. Louis, the 2011 AAA Annual Meeting, the 2012 AAA Midyear Auditing meeting (discussant Paul Chaney), the 2013 Journal of Accounting Research conference, as well as an anonymous referee. We would like to thank PricewaterhouseCoopers and the Mendoza College of Business for financial support.


To what degree are audit fees for U.S. firms with publicly traded equity higher than fees for otherwise similar firms with private equity? The answer is potentially important for evaluating regulatory regime design efficiency and for understanding audit demand and production economics. For U.S. firms with publicly traded debt, we hold constant the regulatory regime, including mandated issuer reporting and auditor responsibilities. We vary equity ownership and thus public securities market contextual factors, including any related public firm audit fees from increased audit effort to reduce audit litigation risk and/or pure litigation risk premium (litigation channel effects). In cross-section, we find that audit fees for public equity firms are 20–22% higher than fees for otherwise similar private equity firms. Time-series comparisons for firms that change ownership status yield larger percentage fee increases (decreases) for those going public (private). Results are consistent with litigation channel effects giving rise to substantial incremental audit fees for U.S. firms with public equity ownership.