ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

Re－examination on the‘Big4 premium’in Audit Fee

  • Kiho Choi University of Seoul

Asian Tax Journal Vol. 9 No. 4 (2008), pp. 319-347

Abstract

'Big4 premium' means that Big4 auditor earns higher fee than Non Big4 auditor. Many papers have shown empirical evidence on 'Big4 premium' in various audit market, such as U.S., U.K., Australia, and New Zealand. But some papers proposed that 'Big4 premium' was only false image made by self selection bias(Chaney et al. 2004; Ireland & Lennox, 2002). Ireland & Lennox(2002) reviewed on 'Big4 premium' of U.K. listed firms after controlling self－selection bias. Chaney et al. (2004) conducted similar research on private firms in U.K. I conduct research on 'Big4 premium' in Korean audit market. I collect 9,428 firm－years as sample and use the Heckman's two stage approach to control self selection bias. At first, 'Big4 premium' is obvious in my sample before controlling self－selection bias. But after controlling self selection bias, 'Big4 premium' disappears. I observed the same results in listed firm sample and private firm sample. This result means that the Big4 premium in audit fee may be only illusion by self selection bias. Also, this result means that the audit quality of Non Big4 auditors may not be different to that of Big4 auditor. But, it is possible that unobservable non economic factors (eg. human relationship) affect the selection of Non Big4 auditor.

Keywords

  • Big4 premium
  • self selection bias
  • Heckman's two stage approach

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