Pricing Strategies of Big4 and Non-Big4 Auditors in the Light of Audit Tendering

This study empirically investigates the effects of mandatory audit tendering on audit pricing. Specifically, we examine audit pricing strategies potentially applied by Big4 and non-Big4 auditors when facing a tender for the upcoming period. Our study is motivated by the recent implementation of mandatory audit tendering in the European Union. Using a sample of 496 firm-year observations related to listed German companies, our results suggest that Big4 auditors facing a tender for the upcoming period charge higher audit fees than Big4 auditors not facing a tender, while a similar fee effect is not observable for non-Big4 auditors. In additional analyses, we do not find that Big4 auditors facing a tender for the upcoming period provide higher audit quality as measured by the extent of earnings management than Big4 auditors not facing a tender. In contrast, non-Big4 auditors allow more extensive earnings management when facing a tender for the upcoming period. Overall, our findings suggest that Big4 auditors apply strategies focussing on audit pricing, while non-Big4 auditors use alternative ways to deal with mandatory audit tendering. Our study is, to the best of our knowledge, the first study that examines the effect of audit tenders for upcoming periods on audit pricing