Relative bargaining power in light of the current debate on audit market regulation Online publication date: Sat, 13-Feb-2016
by Annette G. Köhler; Nicole V.S. Ratzinger-Sakel
International Journal of Corporate Governance (IJCG), Vol. 6, No. 2/3/4, 2015
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.
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