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Does information asymmetry predict audit fees?

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  • Alex Frino
  • Riccardo Palumbo
  • Pierangelo Rosati

Abstract

This study investigates whether and how information asymmetry in the stock market affects the quantum of audit fees paid by auditees. It is based on a sample of 218 US publicly traded companies and adopts two well‐established proxies for information asymmetry, namely bid‐ask spread (BAS) and probability of informed trading (PIN). Empirical results provide evidence that, after controlling for all main audit fees determinants, information asymmetry is positively related to the quantum of audit fees paid. Overall, evidence supports the contention that less transparent companies convey higher audit risk, and therefore auditors require higher compensation.

Suggested Citation

  • Alex Frino & Riccardo Palumbo & Pierangelo Rosati, 2023. "Does information asymmetry predict audit fees?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(2), pages 2597-2619, June.
    • Handle: RePEc:bla:acctfi:v:63:y:2023:i:2:p:2597-2619
    DOI: 10.1111/acfi.12985
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