Title: Relative bargaining power in light of the current debate on audit market regulation

Authors: Annette G. Köhler; Nicole V.S. Ratzinger-Sakel

Addresses: Department of Accounting, Auditing and Controlling, University Duisburg-Essen, Lotharstraße 65, 47057 Duisburg, Germany ' Institute of Accounting and Auditing, Ulm University, Helmholtzstraße 22, 89081 Ulm, Germany

Abstract: This study examines relative bargaining power of a continuous auditor-client relationship in the German audit market to determine whether auditors can exert their power at the expense of clients. It responds to findings published by the UK Competition Commission in 2013 which assumes audit market features to impair clients' bargaining power, resulting in adverse effects on competition. By relating bargaining power to the fee negotiation process, we treat the existence of companies with positive abnormal audit fees (with negative abnormal audit fees) over the entire period of study as an indicator for auditors' bargaining power being greater than clients' bargaining power (clients' bargaining power being greater than auditors' bargaining power) for these auditor-client relationships. Our results do not suggest that the CC's assumption, i.e., auditors' bargaining power to be greater than clients' bargaining power during a continuous auditor-client relationship, holds for the audit market segment of study.

Keywords: relative bargaining power; audit fee negotiation; audit market regulation; abnormal audit fees; auditing; auditor-client relationship; Germany; client bargaining power; auditor bargaining power.

DOI: 10.1504/IJCG.2015.074687

International Journal of Corporate Governance, 2015 Vol.6 No.2/3/4, pp.217 - 240

Received: 10 Nov 2014
Accepted: 29 Jun 2015
Published online: 13 Feb 2016 *

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