Client's Business Risk, Public‐Interest Entities, and Audit Fees : The Case of German Credit Institutions

This study examines a sample of 573 German credit institution‐year observations covering 2009–2011, a period when not all credit institutions were designated as public‐interest entities (PIEs) in Germany. The results show that a credit institution's business risk is associated with audit fees. In addition, the statistically significant findings reveal that PIE credit institutions pay approximately 27.29% higher audit fees, on average. There is also some evidence of an association between the interaction of a credit institution's business risk and PIE status and audit fees even if, on average, the business risk of credit institutions seems not to vary systematically between PIEs and non‐PIEs. Ultimately, since a dummy variable for PIE versus non‐PIE might not only, or even primarily, capture effects attributable to PIE status, the results should be interpreted with caution