International evidence on economic policy uncertainty and asymmetric adjustment of audit pricing: Big 4 versus non-big 4 auditors

Published in：JOURNAL OF BUSINESS FINANCE & ACCOUNTING

Abstract：By investigating the association between economic policy uncertainty and audit fees using data from eight countries, this study examines whether and how Big 4 auditors reinforce their advantages over non-Big 4 auditors through audit pricing. We find that both Big 4 and non-Big 4 auditors reduce their audit fees when economic policy uncertainty increases. However, while non-Big 4 auditors adjust audit pricing asymmetrically as economic policy uncertainty changes, i.e., themagnitude of decline in audit fees when economic policy uncertainty increases exceeds themagnitude of rise when economic policy uncertainty decreases, Big 4 auditors regulate their audit pricing in a symmetric manner. Further analyses reveal that: (1) the asymmetric pricing of non-Big 4 auditors mainly exists in countries where Big 4 auditors have dominant market share, (2) Big 4 auditors provide higher-quality audits when economic policy uncertainty increases and (3) many firms in better financial condition turn to Big 4 auditors during uncertain years. Our findings suggest that the symmetric audit pricing helps Big 4 auditorsmaintain a favorable position in the audit market.

Keywords：asymmetric adjustment of audit pricing, Big 4 and Non-Big 4 auditors, economic policy uncertainty