SUMMARY The audit pricing literature documents industry-specific pricing effects, focusing on the largest auditors with inter-firm (across firms) advantages developed through market dominance. However, prior studies have distinguished between auditors’ inter-firm and intra-firm (within-firm) advantages within an industry. We examine how auditors’ relative industry focus serves as an intra-firm advantage, distinct from market share and other portfolio measures. To capture this, we use FOCUS, a measure of auditors’ relative production efficiencies within an industry. Using 20,530 observations of U.S.-listed firms from 2009 to 2019, we find consistent evidence that relative industry focus is associated with lower audit fees. This effect is distinct from auditor size and scale measures, robust to alternative specifications, and is not associated with lower audit quality. These findings demonstrate that auditors of all sizes can develop industry-specific comparative advantages, addressing the limited research on smaller auditors’ industry-specific competencies. Data Availability: Data used in this study are available from public sources identified in the paper. JEL Classifications: M40; M4; L11.
Chen et al. (Sun,) studied this question.