Audit Firm Industry Specialization as a Differentiation Strategy

Download or read book Audit Firm Industry Specialization as a Differentiation Strategy written by Brian W. Mayhew and published by . This book was released on 2002 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines IPO assurance fees to assess the use of industry specialization as a differentiation strategy by audit firms. Theory suggests that as an audit firm's share of a client industry increases their costs will decrease and their service quality to that industry will increase. In this setting, the impact of industry specialization on fees is indeterminate. We extend existing theory by considering both the supply and the demand for industry specialization. We conclude that the market for audit services is generally price-competitive, suggesting that auditors will be forced to share cost savings with clients. However, when an audit firm is able to differentiate its services from competitors it should be able to earn a modest premium. We test and find support for our conjectures using U.S. IPO audit fee data from 1991 to 1997.