Accounting Department Research Seminar - Associate Professor Tom Scott

We contribute to prior literature on auditor characteristics and scale economies by considering comparative advantage. Drawing from economic trade literature, we use Revealed Comparative Advantage (RCA) that measures an audit firms’ industry focus relative to that of the average audit firm. Thus, RCA measures whether audit firms have a comparative advantage in an industry as opposed to an absolute advantage. We find consistent evidence that RCA is negatively associated with audit fees after controlling for prior measures of scale, competition and industry specialisation, and persists regardless of whether market share is calculated based on the number of clients, clients’ total assets or clients’ sales. RCA is also significant and negative across Big N, non-Big N, client size and client power subsamples.