Are the Big 4 audit firms homogeneous? Further evidence from audit pricing

We provide new evidence on audit pricing differences within the Big 4 audit firms in the U.S. market. Industry expertise research argues that an audit firm with greater competencies can differentiate itself from competitors in terms of within‐industry market share and charge an audit fee premium for its services. We show that while KPMG's average fee premium is smaller than those of other Big 4 audit firms, PricewaterhouseCoopers consistently earns an above‐average fee premium and has remained the market share leader across most U.S. industries. More importantly, the supposed effects of industry specialization on audit fees become statistically insignificant after controlling for individual pricing differences within the Big 4. Overall, we conclude that the Big 4 firms are not homogeneous in audit pricing, and that the literature has apparently confounded an individual audit firm reputational effect (as first observed by Simunic, 1980) with an industry specialist fee premium in the U.S. audit market.